Reasons for Japan's economic growth slowdown

Japan's economy grew more slowly than forecast in the fourth quarter due to weak consumption, but the gain could still support interest rate hikes.

Japan's economic growth in the fourth quarter (October-December) slowed more than initially estimated, hit by weaker consumption, but the growth could still create favorable conditions for the Bank of Japan (BOJ) to continue its policy of raising interest rates.

At the same time, Japanese government officials and analysts have expressed concerns about the potential impact of trade fluctuations on global growth and weak consumption due to rising prices.

Household spending in Japan rose 0.8% in January from a year earlier, much lower than the 3.6% increase forecast by the market. Illustrative photo

Revisional figures from the Cabinet Office showed gross domestic product (GDP) grew 2.2% year-on-year in the final three months of 2024, slower than the 2.8% growth initially estimated and the median forecast of economists.

" There has been no significant change in Japan's growth, so I don't think this will affect people's perception of the economy. If you just look at GDP, I don't think this will prevent the Bank of Japan from continuing to raise interest rates ," said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.

The BOJ raised short-term interest rates to a 17-year high in January, and growth momentum in the world's fourth-largest economy will be among the factors that determine the pace of future policy tightening.

Capital expenditure as a share of GDP, a measure of the strength of private-sector demand, rose 0.6% in the fourth quarter, revised up from a 0.5% increase in the initial estimate. Economists had forecast a 0.3% increase.

Private consumption, which accounts for more than half of economic activity, was unchanged from a 0.1% increase in the preliminary estimate.

External demand contributed 0.7 percentage points to Japan's growth, unchanged from the initial estimate. Domestic demand fell 0.2 percentage points.

Japanese Economy Minister Ryosei Akazawa warned that Japanese market consumption could be affected by persistently high food costs and risks from trade fluctuations.

Household spending rose 0.8% in January from a year earlier, data from Japan's Internal Affairs Ministry showed, much slower than the 3.6% increase forecast by the market. In seasonally adjusted terms, January spending fell 4.5%, larger than the previously estimated 1.9% decline.

The Bank of Japan raised short-term interest rates to a 17-year high in January, and growth momentum in the world's fourth-largest economy will be among the factors that determine the pace of future policy tightening.

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