Japan's GDP grew by 0.6% qoq in Q4 2024, below the flash estimate of 0.7% but still an improvement from an upwardly revised 0.4% expansion in Q3, marking the third consecutive quarter of growth and showcasing the resilience of the Japanese economy in a challenging global environment. The latest data suggests that Japan's economic recovery is continuing, albeit at a slightly slower pace than initially expected.
Japan Q4 GDP growth revised slightly lower
Private consumption saw a slight downward revision, remaining flat rather than showing a modest 0.1% growth as reported in the flash estimate. This revision follows a 0.7% increase in Q3, indicating that household spending remained subdued in Q4. The flat consumption growth can be attributed to ongoing pressures from higher living costs and cautious consumer sentiment, as households remain wary about inflation and the uncertain economic outlook.
Business investment saw a notable uptick
On the positive side, business investment saw a notable uptick, rising by 0.6%, higher than the preliminary estimate of 0.5% and a significant rebound from the 0.1% decline in Q3. This growth in business investment signals that Japanese firms are continuing to invest in capacity expansion and technology despite global uncertainties. The gain suggests confidence in future demand and an underlying optimism regarding the long-term prospects for the economy, driven in part by the gradual recovery in domestic and international markets.
Government spending also continued to support economic activity, expanding by 0.4%, up from an initial estimate of 0.3% and marking the fourth successive quarter of growth in public expenditure. This growth in government spending was driven by fiscal stimulus measures aimed at boosting economic activity and supporting key sectors such as infrastructure and defense.
Net trade made a significant contribution to overall GDP growth
Net trade made a significant contribution to overall GDP growth, adding 0.7 percentage points, as exports rose for the third straight quarter, though at a slower pace than in Q3 (1.0% vs. 1.5% in Q3). Despite concerns over US tariff threats and a challenging global trade environment, Japan's exports have remained resilient, driven by demand from key trading partners. Imports fell for the first time since Q1 2024, declining by 2.1% compared to a 2.0% increase in Q3, suggesting that domestic demand for foreign goods has weakened.
On an annualized basis, Japan's economy advanced by 2.2%, accelerating from an upwardly revised 1.4% in Q3. This improvement in annual growth highlights the overall strength of Japan's recovery, driven by solid business investment, government spending, and a favorable trade balance. However, the economic outlook remains uncertain, with potential risks such as global inflationary pressures, supply chain disruptions, and external geopolitical factors that could weigh on future growth.
Policymakers may focus on supporting domestic consumption
As Japan continues its recovery from the pandemic, policymakers will likely focus on supporting domestic consumption and addressing supply-side constraints while maintaining a cautious stance on fiscal and monetary policy. The latest GDP figures suggest that while Japan’s economy is moving in the right direction, challenges remain, and growth may moderate in the coming quarters if global uncertainties persist.
