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A weak yen, global macroeconomic uncertainty and a rising trade deficit were expected to put Japan’s economy in a recessionary mode. However, the latest GDP figures released by the government show that the economy may have successfully avoided a recession, but challenges remain for the central bank to scale down its stimulus programme.
For the fourth quarter of 2022, Japan’s GDP grew at an annualised 0.6%, a much smaller rebound than expected, after the economy had contracted by 1% during the previous quarter. For the full year, Japan reported a GDP growth of 1.1%.
Influencing factors for Japan GDP growth
Market experts were expecting Japan to grow at 2% during the final quarter of 2022, but falling business investments and inventory proved to be an impediment. However, the country’s private consumption is holding up against economic headwinds such as rising living costs.
Private demand was up 2.4% in 2022 compared to the previous year, whereas household consumption grew 2.2%, in line with the country recovering from the Covid-19 pandemic. For the full year, corporate investments were up 1.8%.
A major issue for Japan is the rising fuel costs coupled with a weak yen, which is draining it of its forex reserves. Higher import costs and weaker export growth led to a trade deficit of $11.27 bn in December. In 2022, the country recorded a trade deficit of 19.971 tn yen ($151.35 bn), the biggest amount on record since 1979.
The weaker-than-expected Japan GDP rebound in the final quarter of 2022 may pose issues for the central bank, which on February 14 nominated academic economist Kazuo Ueda as the next governor. The new governor is expected to rejig the ultra-loose monetary policy and provide support to the yen.
“We expect the modest recovery to continue this year, but it is questionable whether it is going to be strong enough for the Bank of Japan to make progress in normalization as rapidly as expected by the market,” writes Min Joo Kang, Senior Economist, South Korea and Japan at ING in a note.
Japan’s inflation rose to 4% in December, much higher than the central bank target of 2%. The higher inflation figure puts the central bank in a precarious position to phase out the massive stimulus programme.
