By Satoshi Sugiyama
TOKYO (Reuters) – Japan’s economy avoided a technical recession, revised government data showed on Monday, although the upward move in the fourth quarter was weaker than expected and highlighted concerns about the slow economic recovery.
According to the Cabinet Office, Japan’s revised gross domestic product (GDP) grew at an annualized rate of 0.4% in the October-December period from the previous quarter, better than the initial estimate of a 0.4% contraction.
This was, however, lower than economists’ median forecast of a 1.1% increase in a Reuters poll.
On a quarterly basis, GDP grew 0.1%, compared to the initial reading of a 0.1% decline and a median forecast for a 0.3% increase.
“The stock is an upward revision, but domestic demand remains sluggish, particularly in consumption,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies.
The upward revision came amid growing market expectations that the Bank of Japan may abandon its negative interest rates as early as this month, fueled in part by recent hawkish comments from board members that Japan was moving towards the central bank’s 2% inflation target.
Capital spending, up 2.0% quarter-on-quarter, anchored the upward revision. That was better than better than the preliminary 0.1% decline, but still below the market’s median forecast of a 2.5% increase.
Private consumption, which accounts for about 60% of the Japanese economy, fell 0.3% in the October-December period, slightly worse than the 0.2% decline expected in the initial estimate. Seafood and household appliances contributed to the downward pressure in the category, a Cabinet Office official said.
External demand contributed 0.2 percentage points to real GDP, unchanged from the preliminary reading.
In the current January-March quarter, the Japanese economy may contract after taking into account the slowdown of the Chinese economy, the halt in production at Toyota Motor (NYSE:) Corp and weak consumption, Sakai said.
BOJ DECISION looms
Despite pockets of weakness shown by the data, the BOJ will likely abandon negative interest rates by next month citing a growing prospect of strong wage increases during annual wage talks with unions, said Marcel Thieliant, head of Asia-Pacific at Capital Economics. .
“The Bank of Japan tends to place more emphasis on its index of consumer activity and does not appear to be particularly concerned about the recent sluggishness of activity,” Thieliant said.
The BOJ will hold a two-day policy-setting meeting on March 18-19.
Japan’s largest trade union confederation, Rengo, called for wage increases of 5.85% this year, exceeding 5% for the first time in 30 years.
Japan’s central bank has long argued that robust wage growth was a prerequisite to undoing more than a decade of a radical monetary experiment.
Japan’s inflation-adjusted real wages fell in January for the 22nd consecutive month last week, while year-on-year household spending in the same month posted its biggest decline in 35 months.