GDP growth in the world’s third-largest economy expanded more than initially thought, owing to an upward revision in key business areas. It grew for eight consecutive quarters, the longest streak since a 12-quarter expansion ended in 1989, the period of Japan’s economic bubble.

Into the Headlines

Japan’s economy grew at an annualized 1.6% in Q4 compared with preliminary estimate of 0.5% and above economists’ expectations of 0.9%. However, it slowed from the previous quarter’s 2.4% annualized growth in GDP. Bank of Japan’s easy money policies and prime minister Shinzo Abe’s stimulus measures are driving economic growth. The central bank does not seem to be convinced with ending the monetary stimulus anytime soon.

Coming to the drivers of economic growth, accounting for two-thirds of GDP, private consumption grew 0.5% compared with a contraction of 0.6% in the previous quarter and unchanged from preliminary estimates.

However, capital expenditure increased a revised 1.0% sequentially in the quarter compared with a 0.7% expansion in the preliminary report. Capital expenditure increased for the fifth straight quarter, driving optimism on higher business investment. Moreover, public investment was revised up to a 0.2% drop compared with a decline of 0.5% reported earlier.

Per data released last week, core consumer inflation increased 0.9% in February, still far from the central bank’s 2% target. Moreover, retail sales in Japan fell 1.8% in January compared with a 0.9% gain in the previous month. This hints at a relatively weaker future in the coming quarters, as a result of which policymakers need to be cautious about the stimulus measures.

“Recent weak data such as industrial output and retail sales for January suggest GDP growth may slow in the first quarter,” per a Business Times article citing Masaki Kuwahara, senior economist at Nomura Securities.

Economic Scenario and Risks Involved