Japans Economy Misses Fourth-Quarter Forecasts


Japan’s economy expanded for an eighth quarter, but the pace of growth fell sharply and missed expectations. Slower growth ahead, particularly with a stronger yen, weakens inflationary pressure and underscores the likelihood of continued stimulus from the central bank.

Highlights of GDP report
Gross domestic product grew at an annualized rate of 0.5 percent in the three months ended Dec. 31 (estimate +1.0 percent), compared with a revised 2.2 percent in the previous quarter.Net exports, or shipments less imports, didn’t add or subtract anything from growth.Business spending rose 0.7 percent (estimate +1.1 percent) from the previous quarter.Private consumption increased 0.5 percent in the fourth quarter from the previous three months (estimate +0.4 percent).

Key Takeaways

Japan’s economy had cruised along at well above its potential growth rate in recent quarters, fueling growing confidence that an ever-tighter labor market and record corporate profits would generate stronger consumer spending and inflation. While private consumption and business investment have improved, wage gains remain sluggish and inflation is still well below target. Economy Minister Toshimitsu Motegi said the run of growth is the longest in 28 years and is the beginning of a positive economic cycle.

Economist Views"It’s hard for the Japanese economy to be self-sustaining when incomes are struggling to rise," said Yasutoshi Nagai, chief economist at Daiwa Securities in Tokyo. "The results were in line with our view," he said, adding that one bright spot was a rebound in household consumption."The good news is that domestic demand is driving growth," Jesper Koll, chief executive officer of Wisdomtree Japan Inc., said on Bloomberg TV. "The pull of imports is actually stronger than expected, and that reduces the net export contribution."

What Our Economist Says…
The slowdown in Japan’s growth to less than potential in 4Q could take some of the wind out of inflation near term. Looking at the details though, the economy looks fairly healthy after two years of uninterrupted expansion. … Risks to the outlook of course abound. U.S. protectionism would damage exports. More urgently, the recent surge in the yen is bad news for Japan’s exporters.
Yuki Masujima, Bloomberg Economics

Other DetailsMeasured quarter-on-quarter, GDP expanded 0.1 percent (estimate +0.2 percent).Private inventories subtracted 0.1 percentage point to GDP.The GDP deflator, a broad measure of price changes, was unchanged from a year ago.

— With assistance by Yoshiaki Nohara, and Toru Fujioka

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