Japan Economy Grows Faster than Anticipated due to Robust Exports and Consumption

Japan's economy expanded at a faster-than-expected annual rate of 2.8% in October-December, boosted by consistent exports and moderate consumption.

On a quarterly basis, the world's fourth largest economy expanded by 0.7% for the third consecutive quarter, according to preliminary data released by the Cabinet Office Monday.

In 2024, the Japanese economy achieved 0.1% growth in seasonally adjusted real GDP, or gross domestic product, which measures the value of a country's goods and services. This is the fourth consecutive year of expansion.

Private consumption increased at an annual rate of 0.5% in the three months through December, holding steady but losing momentum. Exports rose by 4.3%, while capital investment increased by 0.5%.

The positive data boosted Japan's benchmark Nikkei 225 and other Asian markets.

Some analysts believe the anticipation of President Donald Trump's tariffs may have boosted trade.

Unlike the United States and other countries, Japan has experienced deflation, and lower prices stifle growth. However, recent wage increases have kept deflationary trends in check.

Recent data show that inflation is around the Bank of Japan's target of 2%. Higher prices are reducing consumer spending, which accounts for more than half of the economy.

To lift the economy out of deflation, the central bank may raise interest rates further, which have been at or below zero for years. It raised its key interest rate to around 0.5% from 0.25 percent last month, noting that inflation is holding at a desirable level.

The next monetary policy meeting is in March.

"Stronger growth may reinforce expectations for the Bank of Japan to push through with further hikes, while the slowdown in private consumption growth may be addressed by the prospects of higher wages ahead," said Yeap Jun Rong, the market strategist at IG.