Japan’s Economy Slows as Q4 Growth Revised to 2.2%

Japan’s economy grew at a slower pace than initially reported in the final quarter of 2024, according to revised data released Tuesday by the Cabinet Office.

The annualized growth rate dropped to 2.2% from the preliminary estimate of 2.8%. The downward revision confirms that Japan faces persistent challenges in its economic recovery.

In quarterly terms, the growth figure decreased to 0.6% from the initial 0.7% estimate. For the full year 2024, the economy expanded by just 0.1%, unchanged from earlier calculations.

Consumer spending, which accounts for more than half of Japan‘s GDP, stalled completely in the fourth quarter. The Cabinet Office revised this figure down from an initial 0.1% growth estimate.

Weak demand in restaurants, accommodations and automobiles contributed to this disappointing performance. Business investment provided a bright spot in the otherwise underwhelming report.

Capital expenditure grew 0.6%, slightly higher than the preliminary 0.5% figure, driven by stronger software investment in December. Public investment declined by 0.7%, a deeper contraction than the initial 0.3% drop.

Japan’s Economic Performance and Policy Outlook

Private housing investment also fell by 0.2%, contrary to the preliminary estimate of a 0.1% increase. Export growth slowed marginally to 1.0% from 1.1%.

Economic Revitalization Minister Ryosei Akazawa maintained an optimistic tone despite the revision. He stated that Japan’s economy remains on a gradual recovery path, supported by strong wage hikes and improving employment conditions.

The Bank of Japan raised its short-term policy rate to 0.5% in January, the highest level in 17 years. This marked the third rate hike since ending negative interest rates in March 2024. BOJ officials expect inflation to reach 2.4% for fiscal year 2024, supporting the case for monetary policy normalization.

Markets reacted negatively to the GDP revision. The Nikkei 225 index dropped more than 2% following the announcement. The Japanese yen strengthened slightly, trading at 146.77 against the US dollar.

Analysts expect the BOJ to maintain current rates at its March meeting. However, another rate increase may come as early as May if wage negotiations produce favorable results and inflation remains elevated.