Jamie Spencer
Japan’s economy grew at an annualized rate of 2.8% in the October-December period, surpassing expectations, driven by steady exports and moderate consumption. The world’s fourth-largest economy expanded 0.7% quarter-over-quarter, marking its third consecutive quarter of growth, according to preliminary data from the Cabinet Office.
Steady Economic Growth
For the full year 2024, Japan’s real gross domestic product (GDP) increased by 0.1%, continuing four straight years of expansion. Private consumption, which accounts for more than half of the economy, grew at an annualized rate of 0.5% in the fourth quarter, although momentum slowed. Exports saw a significant 4.3% increase, while capital investment rose by 0.5%.
Impact on Financial Markets
The positive economic data boosted Japan’s benchmark Nikkei 225 index and lifted other Asian markets. Some analysts believe that anticipation of President Donald Trump’s tariffs may have contributed to stronger trade figures.
Deflation and Inflation Trends
Unlike many other economies, Japan has long struggled with deflation, which suppresses growth. However, recent wage growth has helped counter deflationary pressures. Inflation has now reached the Bank of Japan’s 2% target, but higher prices have dampened consumer spending.
Monetary Policy and Interest Rates
The Bank of Japan has maintained low or negative interest rates for years to combat deflation. Last month, it raised its key interest rate from 0.25% to 0.5%, signaling confidence that inflation is stabilizing at a desirable level. The central bank’s next policy meeting in March may provide further guidance on potential rate hikes.
Future Outlook
“Stronger growth may reinforce expectations for the Bank of Japan to push through with further hikes, while the slowdown in private consumption growth may be addressed by the prospects of higher wages ahead,” said Yeap Jun Rong, market strategist at IG.
Japan’s economy continues its steady expansion, supported by robust exports and rising wages. While inflationary pressures persist, the Bank of Japan’s policies will be key in shaping future economic stability and growth.
