Fourth-quarter GDP contracted slightly by 0.1 percent on the quarter, or at an annualized 0.4 percent rate, much weaker than the consensus call of a 0.4 percent rebound (annualized 1.6 percent). This follows downward revised third-quarter contraction of 0.8 percent on the quarter and 3.3 percent annualized and pushes Japan's economy into a mild recession amid elevated costs for daily necessities and uncertainty over global growth.

The latest decline included a third straight drop in private consumption at 0.2 percent, 0.1 percent contraction for business investment, and 0.7 percent contraction for public investment. Net exports, contributing 0.2 percentage points to GDP, rebounded less than expected. Contraction in the third quarter reflected a plunge in private inventories, a slip in net exports, as well as slowing in public works spending.

From a year earlier, the economy rose 1.0 percent in October-December (consensus was 1.9 percent), posting the 11th consecutive rise following a 1.7 percent rise (revised up from 1.5 percent) in July-September.

Looking ahead, the economy in January-March is expected to grow moderately but uncertainty over both domestic and external demand remains. The Cabinet Office estimates that in order for real GDP to hit the official forecast of 1.6 percent growth for fiscal 2023, the economy will have to grow 1.23 percent on quarter, or an annualized 5.0 percent in January-March 2024. The economy grew a real 1.5 percent in fiscal 2022, below the official forecast of a 1.7 percent rise.

Japanese policymakers believe the economy still needs monetary and fiscal policy support for achieving sustained growth wage growth while the Bank of Japan has been debating for the need to unwind large-scale stimulus.

Japan is now the world's fourth largest economy behind Germany as the weak yen lowered its nominal GDP in dollar terms in 2023. China overtook Japan as the third largest in 2010 as the latter was mired in deflation and a shrinking working population. Japan is likely to be surpassed by India in a few years.

Japan's gross domestic product for the October-December quarter is expected to rebound a modest 0.4 percent on quarter, or an annualized 1.6 percent, after marking its first contraction in four quarters in July-September with a 0.7 percent (2.9 percent annualized) decline. Consumption is seen flat after falling in the previous two quarters amid elevated costs for daily necessities, business investment remains sluggish with a slight pickup and public works spending continues to drop. Net exports -- exports minus imports -- are set to rebound but mostly due to a one-off surge in services income (copyright royalties). From a year earlier, the economy is forecast to have grown 1.9 percent in the fourth quarter for a 11th consecutive rise after a 1.5 percent rise previously.

Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:
Private consumption 0.0 (minus 0.6, 2nd straight drop)
Business investment plus 0.3 (minus 0.4, 2nd straight drop)
Public investment minus 0.5 (minus 0.8, 1st drop in two quarters)
Net exports (external demand) plus 0.5 (minus 0.1, 1st drop in two quarters)
Domestic demand 0.0 (minus 0.6, 2nd straight drop)

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Gross domestic product is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.