Causes of Decline in Private Consumption and Corporate Investment
Net Exports Turn Positive at 0.2%
"BOJ Contemplates Timing of Interest Rate Hike"
Japan's fourth-quarter economic growth rate recorded -0.1%, marking a technical recession (two consecutive quarters of negative growth).
On the 15th, Japan's Cabinet Office announced that Japan's real gross domestic product (GDP) for the fourth quarter of last year, excluding the effects of price changes, decreased by 0.1% compared to the previous quarter. Following the previous quarter's GDP of -0.7%, this marks two consecutive quarters of negative growth. The annualized economic growth rate recorded -0.4%, significantly below market expectations of 1.4%.
The cause of the negative growth is attributed to a contraction in personal consumption, which accounts for half of the GDP. Due to rising living costs, private consumption decreased by 0.2% compared to the previous quarter. In particular, consumption of dining out and groceries declined noticeably due to high inflation, and clothing sales also dropped due to a warmer winter than usual. Household expenditures in December last year fell by 2.5% compared to the same period the previous year, continuing a decline for ten consecutive months, and corporate capital investment also recorded -0.1% compared to the previous quarter.
Atsushi Takeda, Chief Economist at Itochu Research Institute, said, "The impact of inflation was greater than expected. The shock to the Japanese economy caused by the contraction in consumption was significant."
However, net exports, which recorded -0.1% in the third quarter, increased by 0.2% compared to the previous quarter in the fourth quarter, reducing the extent of the GDP decline. This is attributed to the weak yen and a significant improvement in automobile exports to the United States and semiconductor chip manufacturing equipment exports to China in December last year. Tourism within Japan, classified as service exports, also contributed to the rise in net exports as the number of visitors in December last year reached a record high.
Due to the weaker-than-expected economic indicators, concerns about the timing of the Bank of Japan's (BOJ) interest rate hike have deepened. Implementing a tightening policy prematurely amid a sluggish Japanese economy could burden the market. On the 15th (local time), Bloomberg reported that the market's expected April rate hike became uncertain due to Japan's two consecutive quarters of negative growth. Previously, the market anticipated that the BOJ would pursue normalization of monetary policy around April, when the spring wage negotiations (Chuntu) conclude.
BOJ Governor Kazuo Ueda stated last week in parliament, "Even after the negative interest rate ends, Japan's monetary policy will maintain an accommodative stance for the time being." BOJ Deputy Governor Shinichi Uchida also reaffirmed Governor Ueda's stance, saying, "It is unlikely that the BOJ will continuously and rapidly raise policy rates."
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