(Bloomberg) — Japan’s economy returned to growth in the three months through December, but with still-weak momentum the new central bank governor will face challenges in steering monetary policy through uncertain terrain.
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The Cabinet Office reported Tuesday that gross domestic product grew at an annualized pace of 0.6% in the fourth quarter, turning positive after the previous quarter’s contraction. The figure missed analysts’ estimates for 2.0% growth.
While consumption improved, business spending decelerated and inventories in the economy came down more than expected.
The result came just before the government submitted its nomination for the new Bank of Japan governor to parliament. The turnaround from last quarter’s unexpected contraction should give the new governor some evidence that the Japanese economy is still headed for a moderate recovery.
The return to growth was partly driven by a recovery in private consumption. A travel subsidy program for residents has also spurred activity in the services sector, which accounts for 60% of Japan’s total domestic consumption.
Meanwhile a stronger yen and falling commodity prices helped cut one-time rising import bills, one of the main factors behind the summer contraction.
What Bloomberg Economics Says…
“Looking ahead, we see growth slowing in 1Q23, as higher inflation takes its toll on consumer spending and weakening external demand drags down exports by manufacturers. Spending by domestic travelers and foreign tourists should continue to support the economy.
– Yuki Masujima, economist.
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Nevertheless, the Japanese economy is surrounded by many uncertainties. One of these is the global economic slowdown, which has begun to undermine the country’s otherwise recovering exports, especially to China. It appears that firms are already slowing capital investment given the risks of recession.
All of this is scrutinizing material for the incoming BOJ chief. Prime Minister Fumio Kishida is said to be choosing Kazuo Ueda, a professor and former BOJ board member, as the successor to Governor Haruhiko Kuroda. The choice suggests that Kishida is seeking some changes at the BOJ, but he is not looking for a hard pivot.
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