Japan’s economy grew just 1.5 per cent in the fourth quarter of 2014, shy of forecasts for 2.2 per cent, as consumer spending and capital expenditure weakened on the back of a tax hike in April.
The country’s gross domestic product had contracted 2.3 per cent in the previous three months.
The fourth quarter figure did, however, still mark an end to the recession that started with a 7.1 per cent tumble in the second quarter.
On an annualised quarterly basis, GDP was revised down to 0.4 per cent – also shy of expectations for an increase of 0.5 per cent and down from the preliminary reading of 0.6 per cent.
“One reason for the disappointing capex is the shift in production overseas that has been happening for the past few years,” said Norio Miyagawa, senior economist at Mizuho Securities.
“I still expect the economy to continue to grow, but the virtuous economic cycle that policymakers have been talking about really hasn’t fallen into place yet.”
In response to worries about the pace of economic growth and in an indication of the Bank of Japan’s readiness to defend its inflation target, deputy governor Hiroshi Nakaso said yesterday that further monetary easing was likely if oil price falls hamper its efforts to ramp up inflation expectations.
The economy’s inability to quickly bounce back from the tax increase in April could raise fresh questions about the effectiveness of Prime Minister Shinzo Abe’s economic programme, known as Abenomics.
The immediate outlook for capex may not look rosy either, as a Reuters poll forecast machinery orders to have fallen 4.1 per cent in January from the previous month, after having risen 8.3 per cent in December, the fastest pace in six months.