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 The annualized 2.2 percent expansion in October-December was smaller
than a 3.7 percent increase forecast in a Reuters poll, suggesting a
fragile recovery as the hangover from last year's sales tax hike
lingered.
The preliminary reading for gross domestic product (GDP), which
translates into a quarter-on-quarter increase of 0.6 percent,
follows two straight quarters of contraction, data by the Cabinet
Office showed on Monday.
Economic Minister Akira Amari told reporters after the data's
release that the economy was on track for a recovery with signs
consumer sentiment is picking up.
But analysts pointed to the weak rebound in consumption and capital
expenditure as worrying signs to the outlook.
"These are somewhat disappointing figures," said Takeshi Minami,
chief economist at Norinchukin Research Institute. "The situation
remains weak and companies are clearly postponing investments."
BOJ ON HOLD
The rebound from recession, however, will allow the Bank of Japan to
hold off on expanding monetary stimulus for now even as slumping oil
prices push inflation further away from its 2 percent target,
analysts say.
"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.
The data will be one of the key factors the BOJ will scrutinize at
its two-day rate review ending on Wednesday, where it is widely set
to maintain the current pace of asset purchases in its monetary
stimulus program.
Private consumption, which makes up about 60 percent of the economy,
rose 0.3 percent in the final quarter, less than a median market
forecast for a 0.7 percent increase.
Capital expenditure also rose just 0.1 percent after two straight
quarters of declines, suggesting the BOJ's aggressive money printing
has yet to nudge firms into boosting investment.
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In a glimmer of hope, external demand added 0.2 percentage point to
growth on robust shipments to the United States and China, Japan's
two biggest export destinations.
One of the biggest headwinds for Japan is a deteriorating global
economic outlook, which has triggered a wave of monetary easings
around the world to fight of deflationary pressures and prop up
growth.
But Japanese policymakers are hoping a rebound in exports, which had
been a soft spot in the economy despite support from a weak yen, and
lower fuel costs will encourage firms to spend more on wages and
expenditure.
"The economy will recover backed by firm domestic demand as Japan's
terms of trade improves on oil price falls," Amari said.
Japan's economy slid into recession in July-September last year,
prompting Abe to delay a second sales tax hike initially scheduled
in October 2015.
The slump slowed Japan's quest to beat off nearly two decades of
grinding deflation, and forced the BOJ into expanding monetary
stimulus in October last year.
(Additional reporting by Stanley White, Mari Saito and Kaori Kaneko;
Editing by Shri Navaratnam)
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