Japan Q4 GDP revised up to slight expansion, economy avoids recession

Japan's economy avoided a technical recession, revised government GDP data showed on Monday, even though the upward change in the fourth quarter was weaker than expected and highlighted concerns about the sluggish economic recovery.

Japan's revised gross domestic product (GDP) expanded at an annualised clip of 0.4 per cent in the October-December period from the previous quarter, better than the initial estimate for a 0.4 per cent contraction, according to the Cabinet Office.

It was, however, below economists' median forecast for a 1.1 per cent uptick in a Reuters poll. On a quarter-on-quarter basis, GDP grew 0.1 per cent, compared with the initial 0.1. per cent drop reading and a median forecast for a 0.3 per cent rise.

"The headline is an upward revision, but domestic demand is remains lacklustre, particularly in consumption," said Saisuke Sakai, senior economist at Mizuho Research and Technologies.

Capital expenditure, which increased 2.0 per cent quarter-on-quarter, anchored the upward revision. It was better than better than the preliminary 0.1 per cent decrease but still below a median market forecast of a 2.5 per cent rise.

Private consumption, which makes up about 60 per cent of Japan's economy, fell 0.3 per cent in October-December, slightly worse than the 0.2 per cent drop in the initial estimate. Seafood and household appliances contributed to downward pressure in the category, a Cabinet Office official said.

LOOMING BOJ DECISION

The upward revision came amid growing market expectations that the Bank of Japan could ditch its negative interest rates as early as this month, fuelled in part by board members' recent hawkish comments that Japan was moving towards the central bank's 2 per cent inflation target.

Despite the pockets of weakness shown in the data, the BOJ will likely abandon the negative interest rates by next month citing a growing prospect of hefty pay hikes at annual wage talks with labour unions, said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

"The Bank of Japan tends to put more emphasis on its own consumption activity index and doesn't seem to be particularly concerned about the recent sluggishness in activity," Thieliant said.

The BOJ is scheduled to hold a two-day policy-setting meeting on March 18-19.

Japan, now the world's fourth-largest behind Germany, last week saw inflation-adjusted real wages in January shrinking for the 22nd month in a row, while year-on-year household spending in the same month marked the biggest drop in 35 months.

External demand contributed 0.2 percentage points to real GDP, unchanged from the preliminary reading.