Japan avoids recession in Q4, but doesn't beat expectations

Japan managed to stay on the path of growth in 2022, despite the fact that the figures for the last quarter of the year were well below market forecasts.

The Japanese gross domestic product (GDP) rebounded by 0.2% in the October-December period, after having experienced a revised contraction of 0.3% in the third quarter, the Government Cabinet Office reported on Tuesday.

These figures are far from the growth expected by analysts for this period, and the 2.1% that the Japanese economy advanced in 2021.

The economic data was released shortly before Prime Minister Kishida formally nominated Kazuo Ueda as Bank of Japan governor candidate.

If approved by Parliament, where the Executive has a majority, Ueda, 71, would take over in April from Haruhiko Kuroda, the architect of Japan's ultra-lax monetary policy, who has led the entity for ten years.

Ueda, a respected economist and academic, would face mounting pressure upon taking office to normalize ultra-easygoing policy and phase out the Bank of Japan's massive stimulus program.

The world's third largest economy advanced 0.2% in the last three months of 2022, a much slower pace than expected due to the collapse in investment and the fall in private inventories (the total value of goods and services produced in a country), points out Mari Iwashita, chief market economist at Daiwa Securities, quoted by Bloomberg.

For the expert, the results were "surprisingly weak" and show that "it will take more time for the economy to return to its pre-pandemic level."

And she alerts: “We cannot be optimistic for the first quarter of 2023 ″.

Among the main factors that helped support the recovery after the contraction of the third quarter were the reactivation of international tourism after two and a half years of strict border controls, the recovery of the yen against the dollar — which sank in June to its lowest low low in 24 years—and the increase in domestic consumption.

Private consumption, which accounts for more than half of Japan's GDP, rose 0.5% in the fourth quarter, matching the average market forecast.

However, capital spending fell 0.5%, a steeper decline than the 0.2% forecast by economists.

“We expected a rebound in October-December after the unexpected contraction in the previous quarter, but growth is not strong.

Even so, the data reinforces the forecast that the economy is recovering moderately”, says Shinichiro Kobayashi, chief economist at Mitsubishi UFJ Research and Consulting, quoted by the Kyodo news agency.

“Although there is a strong demand for accommodation, leisure and inbound tourism, prices do not stop rising and are expected to continue to do so.

It's a tug of war,” he adds.

Inflation

Inflation in Japan stands at its highest value in four decades and doubles the 2% target set by the central bank.

Faced with the unstoppable rise in prices, the Japanese prime minister has asked companies to raise the wages of their employees in view of the need to create a positive growth cycle led by corporate profits and private consumption.

Japan's Finance Minister Shunichi Suzuki said Tuesday that the data shows that the Japanese economy is gradually recovering with the help of government measures, although he warns that "the slowdown in foreign economies could also drag down the Japanese economy."

“We must pay attention to the impact of inflation, supply chain restrictions, volatility in financial markets and the covid situation in China,” Suzuki added.

Japan has lagged behind other powers in recovering from the height of the pandemic, largely due to long-standing restrictions it imposed to curb the spread of covid.

According to the data published this Tuesday, the GDP registered an expansion of 1.1% for the whole of 2022, a slower pace than the 2.1% experienced in the previous year and below the expectations of 1.4% of the International Monetary Fund (IMF).

The economic slowdown has been produced mainly by the fall in exports compared to the increase in the cost of imports, analysts point out.

According to the latest IMF forecasts, the Japanese economy will grow by 1.8% in 2023.

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