Japan’s Economy Grew by 2.8% in Q4 of 2024

Japan’s economy grew an annualised real 2.8% in fourth quarter of 2024, marking the third straight quarter of expansion on robust corporate spending, but lacklustre private consumption underscored the protracted effects of inflation, government data showed on Monday.

Nominal gross domestic product (GDP), which shows the size of the economy in current prices, totalled $4.01 trillion, surpassing the $3.95 trillion mark for the first time on a calendar year basis, according to the Cabinet Office of Japanese government.

In 2024, real GDP, which is adjusted for inflation and shows the total value of goods and services produced in a country, grew 0.1%, marking the fourth straight yearly gain. But the pace of growth slowed sharply from 1.5% in 2023, as Japanese households struggled to cope with the rising cost of living without substantial gains in real wages.

The average market forecast was for an annualised real 1.32% expansion in the October-December quarter, according to a poll by the Japan Center for Economic Research.

On a quarterly basis, real GDP increased 0.7% from the previous July-September quarter, against the 0.33% rise projected by economists, the Cabinet Office said.

Capital investment increased 0.5%, marking a turnaround from a 0.1% drop in the July-September quarter, reflecting strong demand for chip-making capacity and the need for new factory builds. Another key component of domestic demand, private consumption, which makes up more than half of the economy, grew 0.1%, up for the third straight quarter.

Consumers ramped up spending on cars and durable goods such as air conditioners. The New Year’s holidays were longer than the previous year, leading to increased spending on hotel stays. However, higher food prices curbed demand for rice and perishables.

The forecast-beating GDP figures came as the minority government led by Prime Minister Shigeru Ishiba has been exploring better ways to support inflation-hit households. The ruling and some opposition parties are in talks to boost people’s incomes and reduce education costs shouldered by families with high school children.

BOJ Interest Rates

The Bank of Japan (BOJ), for its part, has kept expectations high that it will deliver another interest rate increase after its second hike in the most recent cycle in January. It is expected to do so if the economy and price developments are in line with its forecasts.

Japan has seen elevated inflation, one of the reasons why the BOJ has raised interest rates, with wage growth yet to clearly outpace it, dealing a blow to households.

The economy also received a boost from strong exports, which rose 1.1% for the third straight quarter of gain, helped by increased spending by foreign tourists in Japan that is included in the exports calculation. However, imports dropped for the first time in three quarters, down 2.1%.

Public investment marked the second straight quarter of decline, down 0.3% while nominal GDP expanded 1.3% in the October-December quarter, or at an annualised rate of 5.1%, the Cabinet Office said.

Japan’s economy is expected to continue growing in the January-March quarter projecting that capital investment will be solid even as uncertainty remains over the strength of consumption.

The outlook for external demand, a key factor for the export-reliant Japanese economy, looks increasingly murky as the US President Donald Trump has been announcing threat of tariffs on the US-bound goods to address its trade imbalances.