Japan's economy exceeded expectations by growing at an annual rate of 2.8% in the October-December period, driven by robust exports and stable consumption. The country experienced a 0.7% quarter-to-quarter growth, marking the third consecutive quarter of expansion, as reported by the Cabinet Office's preliminary data.
In 2024, Japan's economy saw a modest 0.1% growth in seasonally adjusted real GDP, marking the fourth consecutive year of expansion. Private consumption increased by 0.5% annually during the final quarter of the year, although it showed signs of slowing down. Exports surged by 4.3%, while capital investment rose by 0.5%.
The positive economic indicators had a ripple effect on the financial markets, with Japan's benchmark Nikkei 225 index and other Asian markets experiencing gains. Analysts speculate that the looming threat of President Donald Trump's tariffs may have contributed to the boost in trade activities.
Unlike some other countries, Japan has grappled with deflation in the past, which hindered economic growth. However, recent wage increases have helped counter deflationary pressures. Current inflation rates hover around the Bank of Japan's target of 2%, impacting consumer spending, a significant driver of the economy.
In response to the improving economic conditions, the Bank of Japan has hinted at potential interest rate hikes. After maintaining near-zero interest rates for an extended period to combat deflation, the central bank raised its key rate to approximately 0.5% from 0.25% last month. The Bank's next monetary policy meeting is scheduled for March.
Market strategist Yeap Jun Rong from IG noted, 'Stronger growth may reinforce expectations for the Bank of Japan to implement further rate hikes, while the slowdown in private consumption growth could be offset by the prospect of rising wages in the future.'
