Japan’s economy expanded at an annualized rate of 2.8% in the fourth quarter, exceeding market expectations and marking its third consecutive quarter of growth. Government data released on Monday showed that this was a sharp increase from the revised 1.7% recorded in the previous quarter and well above the 1.1% forecast. Business investment and net exports played a key role in supporting growth, even as domestic demand showed signs of weakness.
Private consumption edged up in the quarter, performing better than expected, but the pace of growth slowed significantly compared to earlier in the year. The annual value of private consumption in 2024 remained lower than it was a decade ago, highlighting long-term challenges in consumer spending. Net exports contributed positively to GDP, partly because imports fell, raising concerns about underlying domestic demand. Exports saw moderate gains, supported by strong spending from inbound tourists.
The strong Q4 result reinforced expectations that the Bank of Japan (BOJ) will continue its gradual shift away from ultra-loose monetary policy. The central bank recently raised interest rates by 25 basis points and may consider further hikes in the coming months. Some economists believe the BOJ will wait until summer for the next rate increase.
Despite positive growth, Japan faces economic uncertainties, including potential U.S. trade tariffs under President Donald Trump. Tokyo is monitoring the situation closely, particularly regarding possible exemptions from new tariffs on steel and aluminum. Prime Minister Shigeru Ishiba has introduced price relief measures to address the impact of inflation, and his government is negotiating additional support, including higher income-tax allowances and free high school tuition.
Japan’s economy narrowly avoided contraction in 2024, registering 0.1% growth for the year. Nominal GDP surpassed ¥600 trillion for the first time, fulfilling a goal set by former Prime Minister Shinzo Abe nearly a decade ago. However, the weak yen has eroded Japan’s position in the global economy, making it the fourth-largest economy after the U.S., China, and Germany. Economists expect India to surpass Japan in the coming years.
