Japan’s economy countered forecasts it was to witness higher spending before April’s sales tax increase and grew less than expected during the fourth quarter of 2013.
Gross domestic product (GDP) was predicted to rise 2.8% in the three-month period leading to December.
Instead, GDP rose by 1% – a small increase which nevertheless saw the country witness its fourth straight quarterly expansion.
This was a consequence of Japan’s weaker capital spending and private consumption, and its lower export figures.
Worryingly, experts have cautioned that the domestic spending fueling this small growth is likely to scale back after the April increase in Japan’s national sales tax of three percentage points – from 5% to 8%.
The latest figures also highlight concerns over the sustainability of Japan’s economic recovery, and if ‘Abenomics’ – the aggressive stimulus programme headed Prime Minister Shinzo Abe aiming to weaken the Japanese currency’s value – is working.
Since taking office in December 2012, Abe has sought to increase the purchases of Japanese products including cars sold abroad via a weakening of the currency.
As a result, the yen lost around 18% compared the US dollar. However any boosts to exports have been limited to domestic demand – in part due to the country’s increase in imports, such as the fuel needed to supplement the economy in the wake of the 2011 Fukushima disaster.
This has caused Japan, as the third-largest economy in the world, to continuously record a large and persistent trade deficit.
“The disappointing GDP result is a reflection of the limit of Abenomics,” Japan Macro Advisors chief economist Takuji Okubo noted.
“Fiscal stimulus and monetary stimulus can only do so much without the actual change in the competitiveness of Japanese economy.”
Takuji cautioned that it is “only when there is a real change in the competitiveness of the Japanese companies, and a positive change in the long term economic outlook, [that there] will be a real change in Japan’s growth performance.”