Japan’s economy returned to growth in the three months through December, but with the momentum still weak the central bank’s new governor will face challenges in steering monetary policy through uncertain terrain.
(Bloomberg) — Japan’s economy returned to growth in the three months through December, but with the momentum still weak the central bank’s new governor will face challenges in steering monetary policy through uncertain terrain.
Gross domestic product expanded at an annualized pace of 0.6% in the fourth quarter, turning positive after the preceding quarter’s contraction, the Cabinet Office reported Tuesday. The figure missed analysts’ estimates of 2.0% growth.
While consumption recovered, business spending contracted and inventories dragged down on the economy more than expected.
The result came out just before the government is set to submit a nomination for the new Bank of Japan governor to parliament. The turnaround from the preceding quarter’s unexpected contraction should offer some proof to the new governor that the Japanese economy is still heading toward a moderate recovery.
The return to growth was partly driven by recovering private consumption. A travel subsidy program for residents has also boosted activity in the service sector, which accounts for 60% of Japan’s total domestic consumption.
Meanwhile a stronger yen and falling commodity prices helped cut once-ballooning import bills, which was one of the main factors behind the summer contraction.
What Bloomberg Economics Says…
“Looking ahead, we see growth slowing in 1Q23, as higher inflation takes a toll on consumer spending and weakening external demand crimps exports by manufacturers. Spending by domestic travelers and foreign tourists should continue to support the economy.”
— Yuki Masujima, economist.
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Still, the Japanese economy is surrounded by many uncertainties. One of these is the global economic slowdown, which has begun to weaken the country’s otherwise recovering exports, especially to China. Firms already appear to be slowing down capital investment in the face of further slowdown risks.
All of this is material to scrutinize for the incoming BOJ chief. Prime Minister Fumio Kishida is said to pick Kazuo Ueda, a professor and former BOJ board member, to succeed Governor Haruhiko Kuroda. The choice suggests that while Kishida may be seeking some changes at the BOJ, he’s not seeking a drastic pivot.
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