Japan avoids technical recession ahead of BOJ meeting as Q4 GDP revised up to slight expansion

Japan narrowly avoided entering a technical recession in the second half of 2023 as the country revised economic data higher, reversing a quarterly contraction into positive growth, supporting the case for the central bank to end its negative interest rate policy this month or next. 

The revised data showed Japan’s gross domestic product (GDP) expanded at an annualized pace of 0.4% in the October-December quarter, the Cabinet Office reported on Monday, better than the initial estimate for a 0.4% contraction. 

This reversed an earlier preliminary estimate for a 0.1% contraction following negative growth of 0.8% in the third quarter. Economists had forecast for a 1.1% uptick in a Reuters poll.

On a quarter-on-quarter basis, Japan’s GDP grew 0.1%, compared with the initial 0.1% drop reading and a median forecast for a 0.3% rise.

The fresh data meant Japan's economy - now the world's fourth-largest behind Germany - avoided a technical recession as companies’ stronger-than-expected spending on plants and equipment.

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Capital expenditure increased 2.0% QoQ, better than the preliminary 0.1% decrease the government announced but below a median market forecast of a 2.5% rise, Reuters reported.

The upward revision came amid growing market expectations that the Bank of Japan could ditch 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 2% inflation target.

The BOJ is scheduled to hold a two-day policy-setting meeting on March 18-19.

(With inputs from Reuters)