TOKYO • Japan's economy grew more than earlier estimated in the fourth quarter as capital expenditure grew at its fastest in almost three years, welcome news for policymakers as they begin to discuss how to wind down years of massive stimulus.
The economy grew an annualised 1.2 per cent in October-December. The figure translates into quarter-on-quarter growth of 0.3 per cent. A stronger pace of growth will be a boon to the government as policymakers have been counting on an increase in business investment to drive future expansion and increase low productivity.
However, growth is still not robust enough to generate the sustained inflation that the Bank of Japan wants, and the risk of rising protectionism could discourage Japanese exporters from raising wages, seen as key to boosting consumption and economic activity at home.
"The economy will remain in recovery mode, because we are seeing the benefits of capital expenditure from manufacturers and the construction sector," said market economist Shuji Tonouchi at Mitsubishi UFJ Morgan Stanley Securities.
Households cut spending for the 11th straight month in January, even as the job market tightened further, separate data showed earlier this month. Private consumption accounts for around 60 per cent of GDP.
However, it is shaping up to be another good year for lending in Japan, another set of data showed yesterday, offering further evidence that - for all its shortfalls - the Abenomics programme of reflation continues to make progress.
One measure of loans outstanding jumped by 2.9 per cent in February from a year before, and has gained at least 2 per cent each month since the spring of 2013 - a pace not seen in BOJ records going back to 1992, the year Japan's land-price bubble popped.
Among the priorities in Abenomics has been shaking up corporate governance and the property market, and that might have contributed to the pick-up in credit.
Financing for mergers and property purchases has combined with the economic expansion to spur lending demand, according to a BOJ official.
Economist Shunsuke Kobayashi of the Daiwa Institute of Research in Tokyo said: "We're finally starting to see the signs of the bottom in terms of profit for the bank sector and even some improvement."