Government figures released on Monday showed Japan’s gross domestic product grew at an annualised rate of 0.2% in the October-December quarter, equivalent to a quarterly increase of 0.1%. The reading marks a return to growth after the previous quarter was revised to a 2.6% contraction.
Corporate capital spending was a key element in the modest rebound, edging up by 0.2% in the fourth quarter and reversing a prior decline. That rise was smaller than the 0.8% increase anticipated in a Reuters poll. Private consumption, which represents more than half of the economy, increased by 0.1% in October-December, matching market expectations but slowing from a 0.4% gain in the preceding quarter.
Net external demand - exports minus imports - made no contribution to growth in the October-December period, after acting as a 0.3 percentage point drag in July-September. Export weakness has moderated, following the United States formalising a baseline 15% tariff on nearly all Japanese imports - down from 27.5% on autos and from the initially threatened 25% on most other goods - a development that has reduced but not eliminated trade headwinds.
Economists expect the world’s fourth-largest economy to continue expanding modestly in the months ahead. A recent survey by the Japan Center for Economic Research of 38 economists produced average annualised forecasts of 1.04% growth in the first quarter and 1.12% in the second quarter of this year.
The Bank of Japan has continued to lift interest rates as part of efforts to normalise monetary policy, a course it can pursue with some cautious confidence given the slow easing of tariff-related drag on growth. Meanwhile, the government led by Prime Minister Sanae Takaichi, fresh from a decisive election victory, is preparing to boost targeted public spending on sectors identified as important to economic security.
Overall, the data portray an economy edging back to growth but doing so unevenly: household spending shows signs of cooling while business investment has only just regained footing. The subdued pickup in both domestic demand and external support suggests the recovery is gradual rather than robust.
Contextual note: The official figures referenced above originate from government data released on Monday and reflect the state of the economy in the October-December quarter.