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11/25/2024 03:18:55 pm

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Is Japan Finally Out Of Its Economic Slump?

Japan's economy has recently recoiled, growing 2.2% in the fourth quarter of 2014 but at a slower pace than the expected 3.7% expansion according to a Reuters poll, due to dismal household and corporate spending.

This would imply a sluggish recovery for the stagnant country, as it still faces the aftermath of the past year's sales tax increase.

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This initial data, a 0.6% quarter-on-quarter advance, comes after 6 months of a contraction.

Economic Minister Akira Amari says that the first review of the gross domestic product (GDP) indicated that the country is on a recovery path with signs of improved consumer sentiment.

However, analysts see the weak performance of consumption and capital expenditures as a hindrance.

"These are somewhat disappointing figures," noted Takeshi Minami, chief economist at Norinchukin Research Institute.

"The situation remains weak and companies are clearly postponing investments," he added.

What this means for the central bank of Japan is that it will have more breathing room and it can delay mounting any monetary stimulus for the time being.

Analysts see this as significant because of the situation of crude oil's continued downward spiral, propeling inflation away from its 2% goal.

Taro Saito, director of economic research at NLI Research Institute, does not expect the Bank of Japan  (BOJ) to do any drastic moves to policy rates any time soon so as to fully see the latest easing's effects on the market.

Analysts share the same point of view, expecting no change in monetary policy as the BOJ embarks on its two-day rate review to end on Wednesday.

While exports grew by 0.2 percentage points from increased shipments to the United States and China, consumer spend, which amounts to 60% of the GDP, inched up by only 0.3% from October-December last year, below expectations of a 0.7% rise.

Likewise, capital expenditures narrowly increased by 0.1%, indicating tht the monetary easing has yet to influence firms to spend more on investments.

Currently, Japan is faced with the ever looming challenge of worsen global economic climate as countries left and right conduct monetary easings to combat deflationary pressures and boost economic expansion.

Despite this, the government remains optimistic.

Amari says of the matter,"The economy will recover backed by firm domestic demand as Japan's terms of trade improves on oil price falls."

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