Japan’s economy experienced significant growth in the fourth quarter, posting an annualized increase of 2.8% according to government data. This growth was fueled by robust business spending, setting a positive tone even as the nation faces external pressures such as tariff threats from U.S. President Donald Trump, which could impact export performance.
The impressive quarterly GDP gain, which comfortably outstripped the median market expectation of a 1.0% rise, follows a previous revised quarter showing 1.7% growth. This improvement translates to a quarterly GDP increase of 0.7%, again exceeding forecasts. An important contributor to this economic boost has been strong domestic demand and a rebound in net external demand, which notably shifted from a negative contribution in the prior quarter.
Private consumption, a key driver of Japan’s economic landscape and representing over half of the total economic output, posted a slight gain of 0.1%. However, this subdued rise compared to a 0.7% increase previously indicates that rising food prices have been a concern for many households, making them more cautious with their spending. Analysts are closely monitoring trends in wages and household consumption to assess the need for further interest rate adjustments by the Bank of Japan.
Capital spending, critical for private demand-led growth, recorded a modest increase of 0.5% in the fourth quarter, falling short of the anticipated 1.0% growth. In addition, improvements in net external demand—calculated as the difference between exports and imports—provided a positive contribution to overall growth after showing negative figures in the earlier quarter.