Japan’s economy grew at a slower pace than initially reported for the final quarter of 2024, a development that may influence the Bank of Japan’s policy decisions when it meets next week. The nation’s Gross Domestic Product (GDP) expanded by 2.2% on an annualized basis in the last quarter of 2024, according to a report from the Cabinet Office released on Tuesday. This revision was lower than the preliminary estimate of 2.8%, primarily due to greater-than-expected inventory declines and weaker-than-anticipated consumption. Economists had largely expected no change to the initial estimate.
Following the announcement, the yen briefly weakened to 147.10 against the U.S. dollar before fluctuating in response to global market movements. Meanwhile, separate figures indicated that household spending in January fell short of expectations, reflecting the ongoing pressures of elevated inflation.
The revised GDP figures underscore some vulnerabilities in Japan’s economy, despite moderate overall expansion. A noticeable slowdown in household spending could prompt the Bank of Japan to adopt a more cautious stance as it continues its strategy of gradually normalizing monetary policy. The BOJ is set to announce its next policy decision on March 19.
Taro Saito, head of economic research at NLI Research Institute, noted that consumer spending is expected to remain subdued in the current quarter, as inflation continues to weigh on households. However, he suggested that these figures are unlikely to prompt the BOJ to alter its view of a moderate economic recovery, with the central bank likely to stay the course with gradual policy normalization.
Many economists, surveyed in January, had predicted that the BOJ would raise its benchmark interest rate in July. Deputy Governor Shinichi Uchida reaffirmed last week that the central bank plans to gradually increase the rate, although the timing remains uncertain.
As with the preliminary data, net trade and business investment were the primary contributors to Japan’s GDP growth, while private consumption showed no increase. This highlights the fragile nature of Japan’s recovery, with growing risks stemming from U.S. trade policies, particularly tariffs imposed under President Donald Trump’s administration. Net exports grew in the last quarter, largely due to a drop in imports, further complicating the outlook for Japan’s trade balance.
Looking ahead, analysts predict a deceleration in Japan’s economic growth, as consumer spending—the largest component of GDP—faces pressure from rising living costs. The ability of households to sustain consumption will be a key factor in determining Japan’s economic trajectory.
In a separate report on household spending, figures for January showed a modest 0.8% increase from a year earlier, falling short of the anticipated 3.7% growth. This marks a continuation of a trend in which inflation and stagnant real wages have led to reduced discretionary spending over the past two years. The latest wage data revealed a 1.8% decline in real wages in January compared to the same month in the previous year, despite solid gains in base pay.
Prime Minister Shigeru Ishiba is closely monitoring domestic demand figures as his government prepares for a national election later this year. A poor performance in recent polls has weakened his political standing, particularly after a leadership transition due to voter frustration over rising inflation. The government has introduced several price relief measures, including the release of emergency rice stockpiles, in response to soaring food prices.
Trade uncertainties continue to mount, particularly as President Trump’s tariff policies remain in place. U.S. Commerce Secretary Howard Lutnick confirmed on Sunday that 25% tariffs on steel and aluminum imports would take effect on Wednesday, with additional tariffs on automobiles, semiconductors, and pharmaceuticals possibly following in early April. A sharp increase in tariffs, particularly on Japanese automobiles, would likely harm Japan’s economy.
Trade Minister Hiroshi Moriyama has reiterated Japan’s request for exemption from the U.S. tariff measures during recent talks with U.S. counterparts, though Japan has yet to receive a favorable response. According to Yuhi Kawano, a market economist at Mizuho Securities, the imposition of additional tariffs could negatively affect Japan’s economy by curbing external demand, especially from the U.S., putting further downward pressure on the Japanese economy beginning in April.
As the economic landscape remains uncertain, Japan’s government and central bank will face critical decisions in the coming months, with inflation, trade risks, and consumption trends continuing to shape the outlook for the world’s third-largest economy.
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