Revised economic data leads to positive outcome
GDP expands 0.4% in three months to december
TOKYO: Japan revised economic data higher, reversing a quarterly contraction into positive growth and thereby avoiding a technical recession, an outcome that supports the case for the central bank to end its negative interest rate policy this month or next.
Gross domestic product expanded at an annualised pace of 0.4% in the final three months of last year, the Cabinet Office reported yesterday, reversing a 0.4% retreat initially reported.
Economists had forecast that the updated report would show 1.1% growth. An upward revision to capital investment figures to reflect 2% growth was a key driver.
Yesterday’s data support the Bank of Japan’s (BOJ) view that the economy continues to recover moderately with companies willing to invest.
A majority of economists expect the BOJ to scrap the negative interest rate with its first hike since 2007 in March or April.
Encouraging signs of wage growth this year have increased bets on the rate hike coming on March 19, when the bank concludes its next policy meeting.
Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute, said the figures were weaker than expected, with domestic demand hit by rising prices. Still, he expects the BOJ to make a policy move this month.
“If they don’t move in March, even with strong results from the wage talks, that could send the yen lower and risk damaging consumers further with higher import costs,” Atago said. “It’s a big dilemma for the BOJ to wait until April.”
Strong corporate capital investment, reported earlier in another report, powered growth last quarter, pushing the economy back into expansion.
Consumer spending, on the other hand, was revised to show a slightly deeper decline at 0.3%.
Inflation has continued to outpace wage gains this year, putting a burden on household budgets and crimping outlays.
Early data indicate the weakness is carrying over into 2024. Household spending declined by 6.3% in January from a year earlier, the biggest drop since February 2021.
The yen initially extended gains after the data before retracing that move, while volatile overnight swaps that signal rate expectations showed a 65% chance of the BOJ hiking in March were also largely unmoved. Yields on benchmark government bonds continued to rise.
The focus is now on annual pay negotiations between companies and labour unions, which will culminate with results from the biggest union group, Rengo, on March 15, the last business day before the BOJ starts its two-day gathering.
The constituents of the union federation have demanded on average the biggest pay hike since 1993, at 5.85%, compared with demands for a 4.49% increase a year ago.
BOJ governor Kazuo Ueda has repeatedly cited the importance of wage negotiations as a catalyst for a virtuous wage-price cycle that would signal that its price goal is achieved and enable the bank to normalise its policy settings.
Board member Hajime Takata said the price target is “finally” coming into sight, boosting market bets on a March move.
Economist Taro Kimura said: “All in all, the gross domestic product report depicts an economy that’s probably not strong enough to convince the Bank of Japan that it’s safe to end its negative interest rate policy at next week’s meeting.”
Prime Minister Fumio Kishida is monitoring trends in consumption and wages as a key to judging whether the country has finally overcome deflation.
The premier reportedly plans to meet with business leaders and union leaders this week for a final push.
The approval rating for Kishida’s government fell 4.4 percentage points to a fresh low of 20.1% in a survey published on Sunday. — Bloomberg