Japan’s economy grows faster than expected in Q4 on strong capex

Japan’s economy expanded an annualized 2.8% in the October-December quarter, government data showed on Monday, backed by strong business spending and beating analyst forecasts.

Strong domestic demand is helping support a recovery in the world’s fourth-largest economy, even as U.S. President Donald Trump’s tariff threats fuel concerns about the export outlook.

The positive figures will also likely support the Bank of Japan’s plan to keep hiking interest rates and normalize monetary policy.

The increase in gross domestic product compared with a median market estimate of a 1.0% gain, and followed a revised 1.7% growth in the previous quarter.

The reading translates into a quarterly rise of 0.7%, better than the median estimate for a 0.3% uptick.

Private consumption, which accounts for more than half of economic output, rose 0.1%, compared with a market estimate of a 0.3% fall.

It cooled down from a 0.7% rise in the previous quarter, indicating that rising food costs kept households reluctant about spending.

Consumption and wage trends are key factors the BOJ is watching to gauge economic strength and determine the need for additional rate hikes.

While the latest wage and household spending indicators showed encouraging signs, analysts have been wary of price pressures hindering a full-fledged recovery in personal consumption.

Capital spending, a key driver of private demand-led growth, rose 0.5% in the fourth quarter, versus a market estimate of a rise of 1.0%.

Net external demand, or exports minus imports, contributed 0.7 of a point to growth, reversing a negative contribution in the July-September period.