ASIATODAY.ID, TOKYO – The Japanese government said that the country managed to escape recession in the fourth quarter of 2023 with economic growth in October-December reaching 0.4 percent thanks to strong capital expenditure.
Real sector Gross Domestic Product adjusted for inflation was revised up from the previous report which fell 0.4 percent. This performance is a positive development for the Bank of Japan because financial markets predict that the central bank will end its negative interest rate policy this March or April.
Even though financial performance was revised to be positive, Japan still lost its status as the third largest economy in the world to be replaced by Germany in 2023.
The government also stated that the economy is recovering at a moderate pace. However, domestic demand, especially private consumption, is less strong because rising prices of daily goods have put a burden on households.
Then, private consumption, which accounts for more than half of the economy, fell 0.3 percent, bigger than the previous estimate of 0.2 percent. This marks a decline for three consecutive quarters with consumers not yet experiencing real wage growth due to accelerating inflation.
This weakening was also offset by capital expenditure growth which soared by 2.0 percent, revised upwards from a decline of 0.1 percent.
“A technical recession can be avoided and the Bank of Japan is likely to end its negative interest rates. However, private consumption is weakening and the economy will likely experience negative growth in January to March,” said senior economist at Mitsubishi UFJ Research and Consulting, Shinichiro Kobayashi, Monday, March 11 2024.
A technical recession could occur, said Kobayashi, if economic performance contracted for two consecutive quarters. Economists are also closely monitoring how much Japanese companies will use the money to invest in equipment to increase output and automation and related technology to address labor shortages.
Another important thing is the rate of wage growth this year, which is an important factor in supporting consumption. According to economists, strong domestic demand is key to achieving the BOJ’s inflation target of 2 percent combined with wage growth. The central bank is seen by financial markets as moving away from its ultra-loose monetary policy.
“This year’s ‘shunto’ wage negotiations are expected to deliver strong results, but it will take time for consumers to experience the true benefits. “We believe the economy is stalling and whether private consumption can sustain until wage growth can be felt later this year is a concern,” added Kobayashi. (Kyodo-OANA)
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