People make their way along a sidewalk in Tokyo on Monday, February 17, 2025 -- AFP
TOKYO: Japan's economy expanded in the October-December quarter at a slower pace than initially reported, weighed by weaker consumption but still likely supporting the case for further interest rate hikes.
At the same time, government officials and analysts expressed concern about risks from U.S. President Donald Trump's tariff policies and soft consumption affected by higher prices.
Gross domestic product (GDP) expanded an annualised 2.2% in the three months to December, the Cabinet Office's revised data showed on Tuesday, slower than the 2.8% growth in the initial estimate and economists' median forecast.
The revised GDP numbers translate into a quarter-on-quarter expansion of 0.6% in price-adjusted terms, compared with 0.7% growth issued in February. The softness in consumption was also seen in much weaker-than-expected household spending data released on Tuesday.
"There wasn't any significant change, so I don't think it will have any impact on changing people's perceptions of the economy," said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.
"If you look at GDP on its own, I don't think it will prevent the Bank of Japan (BOJ) from raising interest rates."
The BOJ raised short-term interest rates in January to their highest in 17 years and growth momentum in the world's fourth-largest economy will be among key factors determining how fast it continues to tighten policy.
The capital expenditure component of GDP, a barometer of private demand-led strength, rose 0.6% in the fourth quarter, revised up from a 0.5% expansion in the initial estimate. Economists had estimated a 0.3% rise.
Private consumption, which accounts for more than half of economic activity, was unchanged versus the preliminary reading of 0.1% uptick.
External demand, or exports minus imports, contributed 0.7 of a percentage point to growth, unchanged from the preliminary reading. Domestic demand shaved 0.2 of a percentage point off.
Japan's economy minister Ryosei Akazawa warned of a hit to consumption from sustained food cost increases and downside risks from overseas, including U.S. trade policy.
"The uncertainties (from Trump's policies) have heightened from December or January," said Uichiro Nozaki, an economist at Nomura Securities.
A barrage of new Trump policies has increased uncertainty for businesses, consumers and investors, notably back-and-forth tariff moves against major trading partners like Canada, Mexico and China.
If tariffs are deployed, that would have an impact on the economy, which would have repercussions on financial markets and monetary policy, Nozaki said, adding "we need to wait and see" how the BOJ views those factors.
Separate data from the internal affairs ministry showed household spending rose 0.8% in January year-on-year, well below the market estimate for a 3.6% jump in a Reuters poll.
On a seasonally adjusted, month-on-month basis, spending dropped 4.5%, bigger than an estimated 1.9% decline. - Reuters
