Japan recession ends as economy registers GDP growth

Japanese GDP returns to growth in Q4 of 2014 and lifts the economy from recession.

The world’s third largest economy grew by 0.6 per cent in the final quarter of 2014 when compared with the previous quarter, putting an end to the economic contraction that had plagued the nation for the two previous quarters. On an annualised basis, the economy expanded by 2.2 per cent.

Japan’s economy had been struggling to return to growth after a sales tax hike dampened spending, causing the prime minister to delay the second scheduled increase to the sales tax.

The economic recovery, however, appears to be fragile and lacklustre as the data failed to match analysts’ expectations. Weak household and corporate spending figures pulled down GDP as a whole, but the return to growth will at least hold the Bank of Japan’s hand from expanding monetary stimulus.

Economic growth will delay further QE

In December, the government injected nearly £19 billion of stimulus into the ailing economy. The package was designed to boost businesses while relieving the pressure on consumers and came a mere two weeks after the prime minister emerged victorious from a snap general election.

The global slowdown increased the threat of deflation and ramped up speculation that the bank would further expand quantitative easing (QE), however, the return to growth has afforded the Bank of Japan room to breathe.

"The BOJ is expected to keep monetary policy unchanged for a while to see the impact from the latest easing," said Taro Saito, director of economic research at NLI Research Institute.

Lower prices will pump up economy

Investors took heart from the news and sent Japan’s Nikkei 225 soaring to hit its highest level since July 2007, a near eight-year high. Despite the data failing to meet expectations, markets were buoyed by the longer-term outlook for Japan.

Japanese policymakers are noting that the lower energy prices should see businesses spend more on wages and expenditure, which will further boost the economy.