Japan claws its way back to growth but only just
Japan's economy expanded less than economists estimated in the fourth quarter, underlining the difficulty in stoking growth while export gains are undermined by weak investment and consumption at home.
Gross domestic product grew at an annualised 2.2pc, less than a median forecast for a 3.7pc increase. Nominal GDP, which is unadjusted for price changes, climbed an annualised 4.5pc from the previous quarter.
The softness of the rebound shows Prime Minister Shinzo Abe's challenge to revive the world's third-largest economy from two decades of stagnation.
Wage rises and increased consumer spending are likely to be pivotal this year to spur activity beyond exports, where the lower yen has contributed to surging profits at companies like Toyota.
"Japan has clawed its way out of recession but we are looking for a modest acceleration in growth," Izumi Devalier, an economist at HSBC, said on Bloomberg TV.
"This is not the picture of an economy that has a lot of spark behind it."
The yen has weakened about 28pc against the dollar since Abe took power in December 2012 with a pledge to revive the economy with his Abenomics reflation policies. While the lower Japanese currency helped boost exporters' earnings, it also increased import costs and bruised consumer sentiment.
The economy shrank 6.7pc in the three months after Abe increased VAT in April, and dropped 2.3pc in the third quarter, according to yesterday's revised data.
Taken for 2014 as a whole, GDP came to a standstill after two years of expansion, reflecting the blow from the tax hike as the government tries to contain the world's heaviest debt burden. The yen advanced 0.2pc to 118.57 versus the dollar yesterday morning in Tokyo. The Topix share index rose 0.9pc, after US equities climbed to a record last week.
Business spending rose 0.1pc in the three months ended December 31 from the previous quarter, when it dropped 0.1pc, according to the data released by the Cabinet Office in Tokyo. Private consumption increased 0.3pc following 0.3pc gain.
Domestic demand is set to remain weak, economists at Capital Economics wrote in a note. Besides a temporary boost from winter bonuses, wages are barely growing and households may use any strong gains in pay this year to replenish their savings, they said.
"The disappointing output figures indicate that the Bank of Japan's view on growth is too optimistic," Capital Economics said. "We still believe that the Bank will announce more easing at the late-April meeting."
The BOJ last month raised its growth forecast for the year starting in April to 2.1pc.