Japan's economic growth exceeds expectations, driven by both exports and capital investment

According to market research, Japan's gross domestic product (GDP) grew at an annualized rate of 2.8% in the fourth quarter of 2024, far exceeding market expectations. In terms of month on month growth, the Japanese economy expanded by 0.7%, achieving three consecutive quarters of growth, keeping the annual economic growth rate at 0.1%. This performance highlights the resilience of the Japanese economy in the face of increasing external uncertainty.

The main factors driving Japan's economic growth include a strong rebound in exports and stable growth in capital investment. Against the backdrop of global demand recovery, Japan's exports increased by 4.3% year-on-year, becoming the main driving force for the economy. In addition, capital investment increased by 0.5%, indicating that business confidence remains strong, while private consumption, although slowing down, still achieved an annualized growth rate of 0.5%, providing some support for the economy.

A stronger export performance indicates that the competitiveness of Japan's manufacturing industry in the global market remains stable. Although private consumption growth has declined, future wage growth may drive consumption recovery. "- A market strategist

Inflation rebounds to target level, market bets on Bank of Japan to continue raising interest rates

As inflation levels approach the 2% target set by the Bank of Japan, market expectations for the central bank to continue tightening monetary policy have risen. The Bank of Japan has previously raised its benchmark interest rate from -0.25% to 0.5%, ending decades of ultra loose policy. Market institutions generally believe that if the economic growth trend continues, the Bank of Japan may further raise interest rates to curb potential inflation risks.

The sustained recovery of the Japanese economy may strengthen market expectations for further interest rate hikes by the central bank, especially in the context of wage growth driving inflation stability. "- A financial analyst

However, some economists point out that the slowdown in private consumption growth in Japan may become a focus of policy makers' attention. If the interest rate hike is too fast, it may have a restraining effect on consumer demand, thereby affecting overall economic growth.

The Japanese yen is supported in the short term, but its long-term trend is still constrained by the Federal Reserve's policies

As market expectations for the Bank of Japan's interest rate hike increase, the yen may receive some support in the short term. Historical experience has shown that interest rate hikes often enhance the attractiveness of the local currency, especially when other major economies continue to maintain cautious monetary policies.

However, the long-term trend of the Japanese yen is still influenced by the policies of the Federal Reserve. If the Federal Reserve continues to maintain high interest rates and the Bank of Japan's pace of rate hikes is relatively moderate, the US dollar may continue to strengthen against the Japanese yen. On the contrary, if the Federal Reserve starts to cut interest rates while the Bank of Japan maintains a relatively tight stance, the yen may experience a greater appreciation.

The Japanese yen may strengthen in the short term due to policy adjustments by the Bank of Japan, but its long-term trend still depends on the monetary policy movements of the Federal Reserve. "- A foreign exchange market analyst.

FXCUE Editor's Opinion: The foundation of Japan's economic recovery is still unstable, and policy balance is crucial

Although the Japanese economy performed better than expected in the fourth quarter of 2024, the uncertainty of future growth remains high. Behind the strong growth in exports, it may be partly driven by short-term demand from external markets, while the weakness in private consumption reflects that domestic demand has not fully recovered.

The Bank of Japan needs to balance the relationship between inflation targets and economic growth in future policy adjustments. If interest rates are raised too quickly, it may suppress corporate investment and consumption, affecting long-term growth momentum. If loose policies are maintained for too long, it may lead to uncontrolled inflation. Therefore, the next decision of the Bank of Japan will become the focus of market attention.

The global economic environment remains complex, and policy adjustments by the Federal Reserve, US Japan trade relations, and changes in global demand will all affect the trend of the Japanese economy. In the future, the policy flexibility of the Bank of Japan will become the key to determining stable economic growth.