February 16, 2015 / 12:15 AM / in 4 years

Instant View: Japan economy grows 2.2 percent in October-December, emerges from recession

TOKYO (Reuters) - Japan’s economy grew an annualized 2.2 percent in October-December to emerge from a recession triggered by last year’s sales tax hike, boding well for premier Shinzo Abe’s efforts to beat back decades of stagnation.

But the expansion was smaller than a 3.7 percent increase forecast in a Reuters poll, suggesting a fragile recovery for the world’s third-largest economy as consumer mood remained soft and uneven global growth weighed on exports.

COMMENTARY:

YUICHI KODATA, CHIEF ECONOMIST, MEIJI YASUDA LIFE INSURANCE COMPANY:

“Although the economy rebounded for the first time in three quarters, the data showed weak recovery from falls due to April sales tax hike last year.

“Recovery in domestic demand was weaker than market consensus, especially capital spending. Corporations are concerned about the outlook for the economy and their actual capital spending lagged behind their plan.

“The pace of recovery in exports has been weak despite sharp falls in the yen, which is behind the slow recovery in firms’ capital spending.

“The data is not weak enough to prompt the Bank of Japan to ease policy soon and the central bank is expected to wait and see the impact from its October easing.”

YOSHIKI SHINKE, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE:

“This is confirmation that the economic recovery is now underway, but the growth is slower than expected, especially in domestic consumption.

“In terms of consumption, the negative after effects of the sales tax hike continues to drag on and companies are not yet proactive about capex....It is recovery, but at a slow pace.

“As for January-March, I think there is still uncertainty about the pace of consumption and whether consumers will loosen their purse strings amid falling gas prices and rising pay...It is unlikely that the uptick will be interrupted but there needs to be some caution over uncertainty on consumption”

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE:

“These are somewhat disappointing figures. Expectations were for higher consumption, but it remains pretty much unchanged from July-September...Capex remains weak and although companies are projecting stronger capex plans, it is not leading to action. The situation remains weak and companies are clearly postponing investments.

“It’s already been nine months since the tax hike but we are not seeing a recovery. It might be difficult to see real change until we get into the new year.”

TARO SAITO, DIRECTOR OF ECONOMIC RESEARCH, NLI RESEARCH INSTITUTE:

“Private consumption and capital spending, which had been expected to boost growth in October-December, turned out to be weaker than expected. Japan’s economy overall is heading to recovery but it lacks strength considering two straight quarterly contractions.

“The data shows negative impact from a sales tax hike last April continued. We expect the economy will grow January-March as benefits from lower oil prices will appear more in the current quarter than the last quarter. And consumer spending and capex are also seen to rise.

“The Bank of Japan is expected to keep monetary policy unchanged for a while to see the impact from the latest easing but it may adopt easing steps around summer when we will probably see clearer signs on consumer inflation’s weak movement.”

MARKET REACTION:

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Reporting by Mari Saito and Kaori Kaneko; Editing by Shri Navaratnam

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