Japan's Economy Faces Slow Growth Despite Strong Fourth Quarter
Tokyo, Monday, 17 February 2025.
Japan’s GDP grew only 0.1% in 2024, despite a stronger final quarter, due to a depreciated yen driving inflation and straining household spending. Economic challenges persist into 2025.
Fourth Quarter Recovery Falls Short
Despite ending 2024 on a relatively strong note with a 0.7 percent quarter-on-quarter growth in Q4 [1][3], Japan’s overall economic performance for the year remained sluggish. The fourth-quarter expansion, while exceeding market expectations of 0.3 percent [3], couldn’t prevent the annual GDP growth from falling to just 0.1 percent, down significantly from 1.5 percent in 2023 [1][3].
Currency Pressures and Consumer Challenges
The Japanese yen has depreciated to a 37-year low against the dollar, trading at approximately 153 yen to the dollar as of February 16, 2025 [1]. This currency weakness has contributed to persistent inflation pressures, particularly affecting household spending. Consumer confidence has deteriorated, with household spending contracting by 0.4 percent and 1.3 percent in October and November 2024 respectively, though showing some recovery with a 2.7 percent increase in December [3].
Export Growth Amid Domestic Weakness
The economy’s fourth-quarter performance was primarily driven by robust export growth, with exports rising 1.1 percent for the third consecutive quarter [7]. However, as noted by Stefan Angrick from Moody’s Analytics, ‘The upbeat headline figure masks a domestic economy still stuck in the mud. Consumption is weak as pay gains have trailed inflation for the better part of three years’ [5][7].
Future Outlook and Policy Response
Looking ahead, Japan faces additional challenges, including potential U.S. tariffs on car imports starting April 2, 2025 [7]. The Bank of Japan has already responded to economic pressures by raising interest rates to their highest level since 2008 [3]. According to Katsuhiko Aiba, a Citi economist, consumer spending recovery is not expected until after Q2 2025, primarily due to negative real wage growth [3]. The Nikkei 225 stock market index reflects these uncertainties, having decreased 1.83 percent since the beginning of 2025 [4].