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Japan Economy Still in Recession, but Pick Up Coming

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Japan's economy contracted for the third consecutive quarter in October-December, showing the country is struggling to escape from a mild recession and adding weight to the new government's push for radical policy steps to revive growth.

Gross domestic product (GDP) fell 0.1 percent in October-December from the previous quarter, compared with the median forecast of 0.1 percent expansion, according to a Reuters poll.

The data is unlikely to affect the outcome of a Bank of Japan policy meeting that ends later in the day.

Looking to kickstart the economy and end two decades of deflation, Prime Minister Shinzo Abe plans to combine the country's biggest stimulus spending since the financial crisis with aggressive monetary policy easing.

"Data show that overseas economies are recovering, so we expect Japan to return to growth in the first quarter. A weak yen will also help exporters," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"The economy is still on the recovery track, and there is a stimulus package that will help from the spring. The Bank of Japan is also likely to continue monetary easing."

Economics Minister Akira Amari said while the economy was still showing some weakness, it was likely to resume moderate recovery helped by monetary easing, stimulus spending and an expected pick-up in global growth.

(Read More: Land of Falling Yen: Japan Cheers Sliding Currency)

On an annualized basis, the economy contracted 0.4 percent, Cabinet Office data showed on Thursday. Economists had expected a 0.5 percent annualised increase.

Private consumption rose 0.4 percent from the previous quarter versus the median forecast for a 0.5 percent increase. Capital expenditure fell 2.6 percent, more than the median estimate for a 1.8 percent decline, marking the fourth straight quarter of decline.

The Bank of Japan is expected to keep monetary policy steady and may revise up its assessment of the economy on Thursday, as the yen's recent declines and a pick-up in global demand offer some relief to the export-reliant economy.

Japan is expected to stress at a Group of 20 meeting this week that its push for aggressive monetary easing is intended to beat deflation and not designed to devalue the yen. A $117 billion stimulus package is likely to pass parliament in coming weeks.

Contact Asia Economy

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