Japan's economy showed a slower-than-expected growth in the last quarter of 2024, according to the latest figures released by Japan’s Cabinet Office. The Gross Domestic Product (GDP) expanded at an annual rate of 2.2% in the fourth quarter, falling short of the initial estimate of 2.8%. This growth was also below market consensus, indicating a potential slowdown in economic recovery. Quarter-on-quarter, the economy grew by 0.6%, slightly missing the preliminary reading of 0.7%.
Consumer price inflation began strongly in 2025, but recent data suggests a cooling in February. The moderation in the core index is attributed to a giveback in several categories that experienced significant increases in January. The core index is estimated to have advanced by 0.27%, while the headline Consumer Price Index (CPI) rose by 0.25%. Despite these developments, temporary shocks are not expected to have a long-term impact on growth throughout the year.
Economic Indicators and Market Reactions
The final GDP reading highlights the importance of comparing figures either to the previous quarter or the same period in the preceding year for a more reliable economic assessment. Quarterly figures are annualized to extrapolate growth rates as if they remained constant throughout the year. This method helps to provide a clearer picture of economic trends and potential forecasts.
At present, the USD/JPY currency pair is trading 0.17% lower at 147.02, reflecting market reactions to the economic data releases. The foreign exchange market often reacts to GDP figures as they can influence monetary policy expectations and investor sentiment. In this context, higher interest rates pose a challenge for gold investments, as they increase the opportunity cost of holding gold compared to placing funds in cash deposit accounts.
Inflation Trends and Economic Outlook
The Japanese economy's performance in the fourth quarter underscores ongoing challenges and adjustments within various sectors. The moderation in consumer price inflation suggests that initial strong price growth may not persist, offering a more tempered inflationary outlook. This cooling effect is primarily due to adjustments in categories that surged earlier, potentially easing cost pressures for consumers and businesses.
Economic analysts stress that temporary shocks affecting one quarter are unlikely to persist throughout the year. This perspective offers some optimism for Japan's economic trajectory despite current fluctuations. The observed moderation indicates potential stabilization in inflationary pressures, aligning with broader global trends of balancing post-pandemic recovery with price stability.
Author’s Note and Disclaimer
The views expressed in this article are solely those of the authors and do not necessarily reflect FXStreet's or its advertisers' official positions. It is important to note that neither the author nor FXStreet are registered investment advisors, and nothing in this article should be construed as investment advice.