Japan's economy emerges from recession but growth weaker than forecast

Shoppers waiting to cross a road in the Ameya Yokocho shopping district of Tokyo, Japan, on Dec 30, 2014. Japan's economy rebounded from recession to grow an annualised 2.2 per cent in the final quarter of last year, but the expansion was smaller tha
Shoppers waiting to cross a road in the Ameya Yokocho shopping district of Tokyo, Japan, on Dec 30, 2014. Japan's economy rebounded from recession to grow an annualised 2.2 per cent in the final quarter of last year, but the expansion was smaller than a 3.7 per cent increase forecast. -- PHOTO: BLOOMBERG

TOKYO (Reuters) - Japan's economy rebounded from recession to grow an annualised 2.2 per cent in the final quarter of last year, giving a much-needed boost to premier Shinzo Abe's efforts to shake off decades of stagnation even as the global outlook deteriorates.

But the expansion was smaller than a 3.7 per cent increase forecast in a Reuters poll, suggesting a fragile recovery for the world's third-largest economy as consumer mood remained soft and uneven global growth weighed on exports.

Still, the return to growth will allow the Bank of Japan (BOJ) to hold off on expanding monetary stimulus in coming months, even as slumping oil prices push inflation further away from its 2 per cent target, analysts say.

The data will be one of the key factors the BOJ will scrutinise at its two-day rate review ending on Wednesday, where it is widely set to maintain the current pace of asset purchases in its monetary stimulus programme.

The preliminary reading for gross domestic product, which translates into a quarter-on-quarter increase of 0.6 per cent, follows two straight quarters of contraction blamed on the hit on consumption from a sales tax hike last April.

External demand added 0.2 percentage point to growth in the quarter, a sign the weak yen was finally driving up exports.

Private consumption, which makes up about 60 per cent of the economy, rose 0.3 per cent in the final quarter, less than a median market forecast for a 0.7 per cent increase.

Japan's economy slid into recession in July-September last year, prompting Mr Abe to delay a second sales tax hike initially scheduled in October 2015.

The slump slowed Japan's quest to beat off nearly two decades of grinding deflation, and forced the BOJ into expanding monetary stimulus in October last year.