• Bloomberg


The economy grew at a pace slower in the October-December quarter than economists expected, underscoring risks to the recovery as the first stage of the consumption tax increase looms in April.

Gross domestic product expanded an annualized 1 percent from the previous quarter, the Cabinet Office said Monday, below the lowest estimate of 1.1 percent in a Bloomberg survey of 37 economists that generated a median projection of 2.8 percent.

While capital spending rose by the most in two years and consumption picked up, trade deficits from surging imports and limited gains in exports dragged on the expansion.

Weaker than forecast growth may fuel speculation that the Bank of Japan will expand stimulus in coming months and add pressure on Prime Minister Shinzo Abe to flesh out his heavily touted plans to make the nation more competitive.

“This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April,” Takuji Okubo, chief economist at Japan Macro Advisors, said. “Prime Minister Abe really needs to be quick in showing to the market that he can deliver reform.”

Business investment rose 1.3 percent from the previous quarter and consumer spending gained 0.5 percent. Exports rose 0.4 percent, while imports surged 3.5 percent.

Recent declines in consumer confidence and limited gains in exports have highlighted the risk that Japan’s recovery under “Abenomics” could fade after the hike.

“It’s unavoidable that the economy will slump in the April-June period due to a backlash from the front-loaded demand,” said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute.

Investors are waiting for Abe to make good on his structural reforms, the “third arrow” of Abenomics in addition to fiscal and monetary stimulus, as he seeks to drive a sustained recovery from deflationary malaise stretching back 15 years.

The BOJ is forecast to leave its policy unchanged at a meeting ending Tuesday, according to all 34 economists in a separate Bloomberg survey. Twenty-five of those polled forecast the bank will add to stimulus by the end of September.

“This is going to weigh on sentiment, but I don’t think it will shock the BOJ into taking any action (Tuesday),” said Izumi Devalier, an economist at HSBC Holdings in Hong Kong. “They’re not going to be inclined to move on something like a preliminary GDP report.”

Devalier said the private consumption number in the report seemed weaker than other data such as automobile registrations would indicate, suggesting that it could later be revised up.

The fourth straight quarterly expansion in the economy follows annualized growth of 1.1 percent in the previous three months. The economy is forecast to contract in the April-June period, when the consumption tax will rise to 8 percent from 5 percent.

Vehicle sales rose in the five months ended January, and housing starts grew a 16th month in December — the longest since the period ended February 1994. At the same time, demand could be undermined by waning consumer confidence, which fell in January to the lowest level since Abe came to power in December 2012.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.