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TOKYO — Japan’s economic system averted recession however rebounded a lot lower than anticipated within the fourth quarter as enterprise funding slumped, an indication of the problem the central financial institution faces in phasing out its large stimulus program.

Whereas non-public consumption is holding up in opposition to headwinds from rising residing prices, uncertainties over the worldwide financial outlook will weigh on Japan’s delayed restoration from the scars of the COVID-19 pandemic, analysts say.

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The world’s third-largest economic system expanded an annualized 0.6% within the ultimate quarter of final yr after slumping a revised 1.0% in July-September, authorities knowledge confirmed on Tuesday.

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The rise in gross home product (GDP) was a lot smaller than a median market forecast for a 2.0% rise, on account of a downswing in capital expenditure and stock.

“From a damaging progress in July-September, the rebound isn’t very spectacular,” mentioned Toru Suehiro, chief economist at Daiwa Securities.

“We are able to count on consumption to choose up as service spending stabilizes. But it surely’s tough to undertaking a powerful restoration partly on account of stress from rising inflation,” he mentioned.

BOJ POLICY CHALLENGE

The weak knowledge highlights the fragile process at hand for Kazuo Ueda, the federal government’s nominee to turn out to be subsequent Financial institution of Japan (BOJ) governor, as he plots a path to normalizing the financial institution’s ultra-easy coverage with out derailing a fragile financial restoration.

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Policymakers hope a rebound in consumption, pushed by financial savings amassed in the course of the pandemic, will final lengthy sufficient for wages to choose up and cushion the blow on households from rising meals and gasoline prices.

With inflation exceeding the BOJ’s 2% goal, the outlook for the economic system and wages can be key to how quickly the central financial institution may section out its large stimulus program.

“It could be onerous for the BOJ to normalize ultra-easy coverage this yr as abroad economies are slowing,” mentioned Takeshi Minami, chief economist at Norinchukin Analysis Institute.

“The BOJ might have to attend till fiscal 2024 on the earliest.”

Whereas non-public consumption rose 0.5% and exterior demand added 0.3 share level to progress, capital expenditure was a drag on the economic system, falling a bigger-than-expected 0.5%, the info confirmed.

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Personal inventories additionally shaved 0.5 level off progress as companies noticed declining inventory of vehicle and uncooked supplies.

RECESSION RISKS

For the total yr, the economic system expanded 1.1% in contrast with a 2.1% enhance in 2021, the info confirmed.

Japan has seen a rise within the variety of abroad guests since ending in October a few of the world’s strictest border controls to stop the unfold of the COVID-19 pandemic.

Financial system minister Shigeyuki Goto informed reporters the economic system was on the right track for a restoration because the pandemic’s influence fades.

“Rising inflation and the worldwide slowdown are dangers,” he mentioned after the info launch. “However company spending urge for food hasn’t cooled … we’re not too pessimistic concerning the outlook.”

Some analysts, nevertheless, warn that international headwinds may weigh on the export-reliant economic system and derail a fragile restoration by discouraging producers to hike pay.

“With different superior economies heading into recessions, we nonetheless count on internet commerce to pull Japan right into a recession as properly within the first half, particularly since enterprise funding is weakening quicker than we had anticipated,” mentioned Darren Tay, Japan economist at Capital Economics.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Extra reporting by Eimi Yamamitsu; Modifying by Shri Navaratnam)