The Japanese economy grew at a far slower pace during the fourth quarter of 2014 than was initially thought, as business investment declined – a sign that makes analysts worry that the recent rise in consumer spending is not driving business investment.
The updated numbers show that the Japanese economy expanded by an annualized 1.5% in the months October through December. This is noticeably lower than the prior reading of an annualized 2.2% growth.
On a quarterly basis, the economy grew by 0.4% in the fourth quarter, compared with the initial estimate of 0.6%.
The revised data, along with several other indicators that have been released over the past few months, show evidence for a weak Japanese recovery. Experts believe that this may pressure the Bank of Japan to intensify their stimulus program to meet its inflation target of 2% and combat falling prices.
“We continue to think it inevitable for the bank to take additional easing actions by autumn as actual inflation rates are underperforming the bank’s projection after the middle of the year,” said Hiromichi Shirakawa, an economist at Credit Suisse.
Weak CAPEX Harms Japanese Economy
While consumer spending during the fourth quarter of last year was revised upwards, weak capital expenditure suggests the Bank of Japan’s loose monetary policy and structural reforms have not yet spurred a cycle of more consumption leading to expansion and higher earnings for businesses.
“One reason for the disappointing capex is the shift in production overseas that has been happening for the past few years,” explained Norio Miyagawa, a senior economist at Mizuho Securities.
“I still expect the economy to continue to grow, but the virtuous economic cycle that policymakers have been talking about really hasn’t fallen into place yet.”
Responding to concerns about economic growth, Bank of Japan’s Deputy Governor Hiroshi Nakaso said that further stimulus is likely if low oil prices interfere with the central bank’s efforts to reach inflation goals.
“We will adjust monetary policy if the price trend changes and if further action is warranted to achieve our 2 percent inflation target at an early date,” said Nakaso.
According to a survey by Reuters, economic growth is expected to strengthen in the first quarter of 2015 to a 2.4% annualized expansion – however, many analysts remain skeptical and doubt whether this pace can be realized.