Japanese economic growth fell short of market expectations late last year, official data showed yesterday, adding to pressure on Japanese Prime Minister Sanae Takaichi to stimulate activity after her recent election landslide.
GDP in the world’s fourth-biggest economy expanded by just 0.1 percent in the fourth quarter of last year, undershooting market forecasts of growth of 0.4 percent.
The growth follows a contraction of 0.7 percent — revised downwards from an earlier reading of minus 0.6 percent — in the previous quarter.
Photo: Reuters
Growth in private consumption, private residential and corporate investments contributed to the expansion, according to the Cabinet Office data.
In calendar 2025, Japan’s economy grew 1.1 percent, after a 0.2-percent contraction in 2024, the data showed.
On an annualized basis, GDP expanded by 0.2 percent in the three months through December, significantly weaker than the median economist estimate of 1.6 percent growth.
Takaichi became Japan’s first woman prime minister in October last year and called snap elections for Feb. 8.
The vote saw her Liberal Democratic Party win a historic two-thirds majority in the lower house.
In November last year, her government pushed through a 21.3 trillion-yen (US$139 billion) stimulus package aimed at boosting growth. However, her spending plans have worried investors.
Japan’s debts are more than twice the size of the country’s economy, with the highest ratio among advanced economies.
Last month, yields on long-term Japanese bonds hit record highs after Takaichi pledged temporarily to exempt food from a consumption tax to ease the pain of inflation on households.
“The minuscule rebound in activity last quarter may embolden PM Takaichi to press ahead with even more fiscal loosening,” Capital Economics Ltd economist Marcel Thieliant said yesterday.
The weak growth “implies that the large supplementary budget passed at the end of November provided no boost to public spending last quarter just yet,” Thieliant said in a note.
“In fact, sluggish economic activity increases the chances that Takaichi will not only press ahead with suspending the sales tax on food but enact a supplementary budget during the first half of the fiscal year that starts in April already rather than wait until the end of this year,” he added.
However, the weak growth is not expected to deter the Bank of Japan (BOJ) from hiking interest rates later this year, economists said.
Japan’s former currency chief said the BOJ is “behind the curve” on taking policy action, adding that higher interest rates would help address inflation and stabilize markets.
“Steady and gradual interest rate hikes can respond to inflation, curb excessive yen depreciation and stabilize long-term bond yields,” Japanese former vice finance minister for international affairs Takehiko Nakao said in an interview with Bloomberg yesterday.
“The BOJ also must look at the exchange rate,” Nakao said, adding that it’s only natural for the central bank to check that the currency is stable even though doing so is not specified in legislation setting out the central bank’s role.
The yen has gained some ground against the US dollar since the election landslide and moved away from levels where the Japanese Ministry of Finance intervened in 2024, but the currency remains weak.
That is despite the BOJ raising its policy rate in December to the highest level in 30 years, a move that further narrowed the rate differential with the US.
Additional reporting by Bloomberg
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