Japan’s Q4 2024 Growth Slows, Steady Policy?

Japan’s economy expanded at a slower pace in the last quarter (Q4) of 2024 than initially reported, prompting expectations that the Bank of Japan (BOJ) may hold its policy stance steady when it meets next week.

The Cabinet Office reported Tuesday that Japan’s GDP grew at an annualized rate of 2.2% in the final quarter of 2024, down from the preliminary estimate of 2.8%. The revision was largely due to weaker-than-expected consumption and a larger-than-forecast decline in inventories. Economists had anticipated minimal changes to the initial data.

Following the release, the yen briefly weakened to 147.10 against the US dollar before fluctuating amid global market declines.

Japan’s Q4 2024 Growth Slows, Boosting Chances for Steady BOJ Policy

Separate figures showed that household spending in January was far weaker than expected, with consumer expenditures rising by just 0.8% year-on-year, missing the consensus forecast of 3.7%. Elevated inflation has continued to put pressure on household budgets, leading to reduced discretionary spending. Real wages also fell by 1.8% in January, underscoring the challenges facing consumers.

Despite the overall economic expansion, the revised GDP figures reveal underlying weaknesses, particularly in domestic demand. As households continue to face inflationary pressures, the BOJ may remain cautious in its approach to tightening monetary policy. The BOJ’s next policy decision is due on March 19, and economists expect a gradual normalization of interest rates, though some anticipate a rate hike as early as July.

Taro Saito, head of economic research at NLI Research Institute, noted that while consumer spending is likely to remain weak in the short term, the BOJ is unlikely to alter its view of a moderate economic recovery.

Meanwhile, Japan faces external risks, particularly from the US trade policy. The US is set to impose new tariffs on steel and aluminum imports, with additional levies on automobiles, semiconductors, and pharmaceuticals expected in April. These tariffs could impact Japan’s export-driven economy, with potential negative effects on growth from the second quarter onward.

Prime Minister Shigeru Ishiba’s government is closely monitoring economic data as it prepares for a national election this summer, where inflation and economic challenges will be key issues.

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