TOKYO (Reuters) – Japan's economy avoided a technical recession, revised government data showed on Monday, even though the upward change in the fourth quarter was weaker than expected and highlighted concerns about the sluggish economic recovery.
Japan's revised gross domestic product (GDP) expanded at an annualised clip of 0.4 per cent in the October-December period from the previous quarter, better than the initial estimate for a 0.4pc contraction, according to the Cabinet Office.
It was, however, below economists' median forecast for a 1.1pc uptick in a Reuters poll.
On a quarter-on-quarter basis, GDP grew 0.1pc, compared with the initial reading of a drop of 0.1pc drop and a median forecast for a 0.3pc rise.
"The headline is an upward revision, but domestic demand is remains lacklustre, particularly in consumption," said Saisuke Sakai, senior economist at Mizuho Research and Technologies.
The upward revision came amid growing market expectations the Bank of Japan could ditch its negative interest rates as early as this month, fuelled in part by board members' recent hawkish comments that Japan was moving towards the central bank's 2pc inflation target.
Capital expenditure, which increased 2.0pc quarter-on-quarter, anchored the upward revision. It was better than better than the preliminary 0.1pc decrease but still below a median market forecast of a 2.5pc rise.
Private consumption, which makes up about 60pc of Japan's economy, fell 0.3% in October-December, slightly worse than the 0.2pc drop in the initial estimate. Seafood and household appliances contributed to downward pressure in the category, a Cabinet Office official said.
External demand contributed 0.2 percentage points to real GDP, unchanged from the preliminary reading.
In the current January-March quarter, the Japanese economy could suffer contraction after factoring in slowdown in the Chinese economy, production halt at a unit of Toyota Motor Corp and weak [domestic] consumption, Sakai said.
LOOMING BOJ DECISION
Despite the pockets of weakness shown in the data, the BOJ will likely abandon the negative interest rates by next month citing a growing prospect of hefty pay hikes at annual wage talks with labour unions, said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
"The Bank of Japan tends to put more emphasis on its own consumption activity index and doesn't seem to be particularly concerned about the recent sluggishness in activity," Thieliant said.
The BOJ is scheduled to hold a two-day policy-setting meeting on March 18-19.
Japan's largest trade union confederation, Rengo, has demanded wage hikes of 5.85pc this year, topping 5pc for the first time in 30 years.
The Japanese central bank has long contended that robust wage growth was a prerequisite for rolling back more than a decade of a radical monetary experiment.
Japan last week saw inflation-adjusted real wages in January shrinking for the 22nd month in a row, while year-on-year household spending in the same month marked the biggest drop in 35 months.