Revised official data released on Monday indicated that Japan’s economy escaped a technical recession, despite the fact that the fourth quarter’s upward change was less dramatic than anticipated and raised questions about the country’s sluggish economic recovery.

The Cabinet Office reports that Japan’s revised gross domestic product (GDP) grew at an annualised clip of 0.4% in the October–December period from the previous quarter, exceeding the initial estimate of a 0.4% contraction.

However, it fell short of the 1.1% increase that economists had projected in a Reuters survey.

GDP increased by 0.1% on a quarter-over-quarter basis, as opposed to the original reading of a 0.1% decline and the median estimate of a 0.3% increase.

“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 increase was made in response to growing market anticipation that the Bank of Japan may eliminate its negative interest rate policy as soon as this month. This expectation was stoked in part by recent hawkish remarks made by board members indicating that Japan was approaching the central bank’s 2% inflation objective.

The higher revision was supported by capital expenditure, which grew by 2.0% on a quarter-over-quarter basis. Although it was still less than the consensus market estimate of a 2.5% increase, it was better than the earlier 0.1% decline.

Japan’s GDP, which is composed primarily of private consumption, shrank by 0.3% from October to December, which is somewhat worse than the 0.2% decline predicted in the first estimate. According to a Cabinet Office official, the category saw negative pressure due to the presence of seafood and home appliances.

Remaining constant from the earlier report, external demand contributed 0.2 percentage points to real GDP.

After accounting for the downturn in the Chinese economy, the stoppage of production at a Toyota Motor Corp. unit, and poor consumption, Sakai predicted that the Japanese economy will decrease in the current January–March quarter.

The BOJ will probably end the negative interest rate policy by the end of next month, despite the data’s pockets of weakness, according to Marcel Thieliant, head of Asia-Pacific at Capital Economics. He cited the increased likelihood of significant pay increases at the annual salary negotiations with labour unions.

“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.

On March 18–19, the BOJ is planning a two-day policy-setting meeting.

For the first time in thirty years, Rengo, the largest trade union confederation in Japan, has called for salary increases of 5.85% this year.

The central bank of Japan has long maintained that the reversal of over ten years of an extreme monetary experiment required strong wage growth.

In Japan, real wages adjusted for inflation shrank in January for the 22nd consecutive month last week. At the same time, household spending fell by the most in 35 months.

(Adapted from LiveMint.com)

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