Japan eased out of recession in the last quarter, with modest growth that analysts said underpins a strengthening economy, as the government and central bank up their fight against deflation.
The 0.2 percent expansion on an annualized basis in the three months to December will be welcome news for Japanese Prime Minister Shinzo Abe, whose first few months in office have seen renewed optimism over the world’s third-largest economy.
The economy had shrunk for two consecutive quarters from April through September as export demand weakened on the back of financial turmoil in Europe, a strong yen and a diplomatic row with China.
Abe’s mantra since being swept to power in December has been one of pumping life into a flaccid economy and turning around 15 years of growth-sapping inflation, while announcing huge debt-funded spending packages.
The country has seen a mixed bag of economic data lately, with the unemployment rate edging down to 4.2 percent in January and deflation doggedly persisting, while industrial output showed a modest rise of 0.1 percent in January from the previous month.
In January, Japan also posted its third straight deficit in the current account, the broadest measure of trade with the rest of the world, showing it was ￥364.8 billion (US$3.8 billion) in the red for the month.
However, the yen has weakened by almost a fifth since November on expectations the Bank of Japan would adopt an aggressive monetary easing policy, making Japanese exporters more competitive and boosting their latest earnings results.
Abe has heaped pressure on the central bank, threatening to change the law guaranteeing its independence if it did not fall into line.
Last month he nominated Asian Development Bank head Haruhiko Kuroda, an advocate of aggressive easing measures, to take the helm at the Bank of Japan, after Masaaki Shirakawa stepped down early following repeated policy clashes with the prime minister.
Abe also unveiled a massive spending plan in January that he says will boost GDP by 2 percentage points and create 600,000 jobs.
Japan Research Institute economist Hideki Matsumura said the GDP figure “confirmed that the Japanese economy has hit bottom and started picking up.”
“Thanks to measures introduced by the Abe administration, Japan is likely to show stronger recovery from now. Nearly all factors are pointing to the positive,” he said.
Mizuho Research Institute senior economist Yasuo Yamamoto said the numbers “show that the bottom of the latest recession was probably in November.”
“Looking at the latest trade data, I would say recovery in exports will still be slow in the January-March quarter, so GDP growth in the same quarter would be also modest,” he said.
“The question is when the effects from public spending in the government’s stimulus package will appear, and I think it will be probably in the April-June quarter,” he said.
Together with a positive impact from a weak yen, which should visibly boost demand for Japanese exports from around July, “Japan will be able to achieve a real GDP growth of 2 percent for fiscal 2013,” which starts next month, Yamamoto said.
Japan logged its worst-ever monthly trade deficit of ￥1.63 trillion in January despite an upturn in exports, as the yen’s recent sharp drop pushed fuel costs higher, finance ministry data showed last month.