In a significant economic development, the Japanese economy has exhibited stronger-than-expected growth in the fourth quarter of 2024, surpassing the Bank of Japan's (BoJ) projections. This growth comes amid President Trump's newly announced tariffs on some of America's trading partners, which pose a potential risk to this economic trajectory. The robust performance has been marked by increased exports and business spending, although the threat of reciprocal tariffs on Japanese goods looms large.
The final quarter of 2024 witnessed a notable uptick in the GDP, driven by a combination of factors. Exports of services saw a substantial increase of 4.1%, fueled by a surge in inbound tourism. Meanwhile, exports of goods rose slightly by 0.1%, propelled by strong information technology exports. The contribution of net exports to GDP was significant, adding 0.7 percentage points to the overall growth.
Business spending showed a promising rebound, increasing by 0.5% in the fourth quarter. This rebound indicates a positive outlook from businesses as they continue to invest in growth opportunities. However, private consumption growth moderated to a modest 0.1%, reflecting cautious consumer spending habits during this period.
Notably, durable goods consumption grew by an impressive 3.6%, underscoring consumers' willingness to invest in long-term assets. Conversely, services consumption experienced minimal growth at 0.1%, highlighting a divergence between different sectors of the economy.
The Japanese economy's performance in the fourth quarter builds on previous gains. Revised growth figures for the third quarter of 2024 have been adjusted upward to 0.4% from an initial estimate of 0.3%. This upward revision solidifies the narrative of steady economic expansion.
Inflationary pressures are also on the rise, with faster inflation growth anticipated. The Consumer Price Index (CPI) recorded a year-over-year increase of 2.93% in the fourth quarter, up from 2.77% in the previous quarter. Headline prices are expected to escalate further, reaching an anticipated 4.0% year-over-year increase in January.
Despite these positive indicators, President Trump's tariff policy remains a critical risk factor for Japan's economic outlook. The potential for tougher-than-expected reciprocal tariffs on Japanese goods could complicate the BoJ's growth projections and strain trade relations between Japan and its trading partners.