Catenaa, Monday, February 17, 2025 – Japan’s economy grew at an annualized rate of 2.8% in the fourth quarter, surpassing market expectations of 1.0%, as strong capital expenditure and resilient consumption fueled growth, government data showed Monday.
The robust expansion, translating to a 0.7% quarter-on-quarter increase, was driven by a rebound in business investment and steady consumer spending. Private consumption, which accounts for more than half of GDP, inched up 0.1%, defying forecasts of a 0.3% decline. Economists attribute this resilience to generous year-end bonuses but warn that rising food prices could weigh on future demand.
Capital expenditure, a crucial pillar of domestic demand, climbed 0.5%, reversing a contraction in the previous quarter. Net external demand contributed 0.7 percentage points to growth as imports declined, helping offset slower consumer spending.
The stronger-than-expected data bolsters the Bank of Japan’s case for further rate hikes. Analysts believe the central bank may tighten monetary policy more aggressively than anticipated, citing solid economic momentum and improving wage trends.
Despite positive signals, concerns linger over slow wage growth and rising costs, which could dampen consumer confidence. Additionally, Japanese exporters ramped up shipments in Q4 ahead of expected trade tariffs under U.S. President Donald Trump’s new policies.
With inflation and trade dynamics in focus, policymakers will closely monitor domestic demand and global risks as Japan navigates its post-pandemic recovery.
