Japan posts marginal Q4 growth

Japan’s economy recorded a marginal annualized expansion of 0.2% in the October–December quarter, with quarter-on-quarter growth of 0.1%, official data showed, underperforming median market forecasts and highlighting a fragile recovery. The uptick reflected a slight rebound in corporate investment that only just reversed a prior decline, while private consumption and business spending remained subdued amid rising living costs and cautious household behavior.

The result missed a poll median of 1.6% annualized growth and followed a revised 2.6% contraction the previous quarter. Exports provided limited support, with strength in autos and machinery offset by softer demand in some tech segments and currency effects. Housing and public spending made only modest contributions to GDP.

Policymakers face a delicate balance as the Bank of Japan continues normalizing policy with gradual rate increases; the weak print may temper plans for more aggressive tightening despite some signs of improving corporate profits, steady employment and nascent wage gains. The government, led by Prime Minister Sanae Takaichi after a decisive electoral victory, plans targeted public investment in sectors tied to economic security to bolster longer-term resilience.

Economists expect gradual expansion in upcoming quarters—surveys point to modestly positive annualized growth in the near term—but warn that uncertainties abroad, persistent inflationary pressures, and structural constraints such as an aging population and labour shortages could limit momentum. Analysts say sustained wage growth, productivity-enhancing reforms and strengthened business confidence will be crucial to translating pay gains into higher household spending.

Financial markets showed muted reactions as investors weighed implications for corporate earnings and interest-rate trajectories. Authorities have pledged policies to support strategic industries and digital transformation, while urging reforms to boost productivity. The fourth-quarter figures underscore the uneven nature of Japan’s recovery: modest improvements in some indicators exist, but domestic demand remains fragile and external risks continue to pose downside threats to growth as authorities pursue a cautious policy course.