Japan’s Economy Shows Signs of Resilience as GDP Revision Exceeds Expectations
Japan’s economy displayed unexpected resilience in the fourth quarter of 2020, as the country’s revised GDP figures surpassed initial estimates. Contrary to the initial forecast of a 0.4% contraction, Japan’s economy actually expanded at an annualized rate of 0.4% from October to December. The revised GDP figures also exceeded economists’ median forecast of a 1.1% increase.
One of the key factors driving this growth was companies’ increased spending on plants and equipment, which helped Japan avoid slipping into a technical recession. Quarter-on-quarter GDP growth was 0.1%, compared to the initial 0.1% drop, with capital expenditure seeing a notable 2.0% increase, surpassing market expectations.
Market expectations now suggest that the Bank of Japan (BOJ) may consider abandoning negative interest rates this month. The BOJ is scheduled to hold a policy-setting meeting on March 18 and 19 to review the country’s monetary policy.
However, not all sectors of the economy showed positive growth. Private consumption, which accounts for 60% of Japan’s economy, fell by 0.3% in the October to December period. In addition, inflation-adjusted real wages continued to decrease for the 22nd consecutive month in January, while household spending experienced its largest drop in 35 months.
External demand remained a bright spot for Japan’s economy, contributing 0.2 percentage points to real GDP, unchanged from the preliminary reading.
Overall, Japan’s revised GDP figures indicate a mix of positive and negative indicators for the country’s economic recovery. With the BOJ meeting approaching, economists will be closely watching for any further signs of how Japan plans to navigate its economic challenges.
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