Japan’s Economy Grew More Than Expected in the Fourth Quarter, of 2024
On 17th February, 2025, Japan released its Fourth Quarter (i.e. October–December 2024) GDP data. Japan’s economy grew more than expected in the fourth quarter (Q4), of 2024.
For the third straight quarter, Japan’s economy has expanded thanks to net exports and boosted investments. This means maintaining the Bank of Japan’s plan to increase interest rates gradually in the coming months. The data boosted the yen (the Japan’s currency). Let’s delve into detail now.
Japan’s economy grows more than expected in the Fourth Quarter, of 2024
The preliminary government data on Q4 of GDP shows that the economy grew by 0.7% quarter-on-quarter (q-o-q). This is higher than the previous quarter growth, which was 0.4% (that is in Q3). The increase in GDP is mainly attributed to the increase in exports.
The data surprises many economists and analysts, as it poised a strong growth of 2.8% (annualised growth).
Japan’s corporate spending increased by 0.5% (q-o-q) contributing to the country’s overall GDP number.
After solid growth of 0.7% in Q3, Private consumption has slowed down with an increase of 0.1% in Q4.
Consumption of households increased by 0.1% in Q4. The robust growth of consumption of households is attributed to durable goods consumption, which grew 3.6% and consumption of services which was 0.1% in Q4.
The exports increased by 1.1% while imports contracted by (-)2.1%. The increase in exports is attributed to an increase in exports of services, which is 4.1% and 0.1% growth in exports of goods.
Japan’s Economy Outlook – Bank of Japan’s View
The Bank of Japan (BoJ – Japan’s Central Bank) stated that “Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions”.
The Consumer Price Index (CPI – all items except fresh food) y-o-y, is likely to increase and be in the range of 2.5-3.0% for Fiscal Year (FY) 2024 (i.e. 1st April, 2024-31st March 2025), around 2.5% for the FY2025, and around 2% for FY26. BoJ expects a gradual increase in CPI inflation and expects that the government measures to push down inflation will have a positive contribution to the y-o-y rate of increase in the CPI (all items less fresh food).
As there are looming inflation worries, it is essential to pay attention to the development of the financial and foreign exchange market – along with its impact on Japan’s economic activity and prices. BoJ believes that exchange rate developments are more likely to affect prices.
BoJ also stated that there are risks to economic activity which are generally balanced, except the risks to prices which are skewed to the upside for FY24 and FY25.
My Perception/ Conclusion
Core inflation is relatively low, which is one of the good signs for consumers. However, the recent consumer confidence survey (i.e. monthly Consumer Confidence Survey) declined to 35.2, the lowest since September 2023. The survey shows that all sentiments declined.
It is a little uncertain now, how the trade (esp. exports) will look like going forward as the U.S. is moving towards a more tariff regime. With trade looking uncertain, prices of rice – which is not considered a fresh food – but one the main ingredients of restaurant meals and processed foods, have already started pushing up the prices of its products higher.
Japan’s standing in the global economy has deteriorated due to the yen’s decline in value. As a result, there has been reduced value of its goods and services in terms of dollars. The yen lost more than 10% last year against the dollar despite multiple interventions from Japanese officials to protect its decline.
The yen has strengthened as a result of the Japanese central bank’s intentional interest rate hikes over the past year. For the past three years, the wage gains have failed to keep pace with inflation.
However, BoJ has to increase its interest rates more carefully now. BoJ, the central bank, should shift its focus directly on encouraging domestic consumption and also by increasing the interest rate more aggressively it can strengthen the yen and bring down its import cost.
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