Japan's economic growth pickup to 0.7% on quarter, or an annualized 2.8%, in the October-December period from +0.4% q/q (revised +1.4% annualized) in July-September was revised down slightly to +0.6% q/q (+2.2% annualized) in the second reading. The solid growth was largely due to a technical rebound in net exports, up 0.7 percentage point (after four quarters of drops), that was caused by a sharper-than-expected slump in imports and masks weak exports. Domestic demand trimmed total domestic output by 0.2 point in Q4 (revised down from -0.1 point) after boosting the Q3 GDP by 0.5 point in Q3, underscoring the wobbly recovery.

Looking ahead, Japan's economic growth in the January-March quarter is expected to be at a standstill, posting a near-zero growth or a slight contraction, as soaring prices of food and other necessities are hurting consumers at a time when real wages are set to slip back into year-on-year declines. Net exports (exports minus imports) are also expected to be dragged down by slowing U.S. demand and struggling Chinese recovery. There remains strong demand to upgrade factories and offices among many industries but lingering labor shortages and high construction costs are hampering a smooth implementation of capital investment. Growing uncertainties over the health of the U.S. economy and global trade could also slow capex.

From a year earlier, Japan's GDP posted a second straight increase in the final quarter of 2024, up 1.1% (revised down from +1.2%), after rising 0.7% in Q3 and falling 0.7% in Q2 (both revised slightly).

Key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.

GDP q/q +0.6% (+0.7%), 3rd straight growth
GDP annualized: +2.2% (+2.8%); 3rd straight growth
GDP y/y: +1.1% (+1.2%); 2nd straight rise
Domestic demand: -0.2 point (-0.1 point); 1st drop in 3 qtrs
Private consumption: +0.0% (+0.1%); 3rd straight rise
Business investment: +0.6% (+0.5%); 1st rise in 2 qtrs
Public investment: -0.7% (-0.3%); 2nd straight drop
Private inventories: -0.3 point (-0.2 point)
Net exports (external demand): +0.7 point (+0.7 point)

Japan's economic growth pickup to 0.7% on quarter, or an annualized 2.8%, in the October-December period from +0.4% q/q (+1.7% annualized) in July-September is forecast to show no or only a limited revision in the second reading. The preliminary Q4 GDP data released last month showed the much stronger-than-expected growth was largely due to a technical rebound in net exports, up 0.7 percentage point (after four quarters of drops), that was caused by a sharper-than-expected slump in imports and masks weak exports. Domestic demand trimmed total domestic output by 0.1 point in Q4 after boosting the Q3 GDP by 0.5 point, underscoring the wobbly recovery.

The contributions from both domestic and external demand are seen unrevised. The rebound in business investment in equipment after a Q3 drop is forecast to be revised down to +0.3% q/q from the initial reading of +0.5% while the second straight quarterly drop in public works spending is seen revised up slightly to -0.2% q/q from -0.3%. China is struggling to recover from the property market slump and demand for Japanese vehicles and construction machinery in the U.S. market is fading under the weight of high borrowing costs. Private consumption rose slightly instead of an expected slip, but remains sluggish amid high costs and depressed real wage growth.

In Q3, an unexpected slip in external demand amid sapping Chinese demand and global uncertainties was offset by surprisingly solid consumer spending on vehicles amid high costs for necessities and stormy weather. The Q4 performance more or less matched the 0.7% (annualized 3.0%) growth in Q2. Earlier, the economy suffered three consecutive contractions, shrinking 0.5% (-1.9%) in January-March 2024, 0.1% (-0.3%) in October-December and 0.9% (-3.6%) July-September 2023.

Looking ahead, Japan's economic growth in the January-March quarter is expected to be ground to a halt, posting a near-zero growth or a slight contraction, as soaring prices of food and other necessities are hurting consumers at a time when real wages are set to slip back into year-on-year declines. Net exports (exports minus imports) are also expected to be dragged down by slowing U.S. demand and struggling Chinese recovery. There remains strong demand to upgrade factories and offices among many industries but lingering labor shortages and high construction costs are hampering a smooth implementation of capital investment. Growing uncertainties over the health of the U.S. economy and global trade could also slow capex.

From a year earlier, Japan's GDP posted a second straight increase in the final quarter of 2024, up 1.2%, after rising 0.6% in Q3 and falling 0.8% in Q2. It is expected to be revised up slightly to a 1.3% rise.

Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.

GDP q/q +0.7% (+0.7%), 3rd straight growth
GDP annualized: +2.8% (+2.8%); 3rd straight growth
GDP y/y: +1.3% (+1.2%); 2nd straight rise
Domestic demand: -0.1 point (-0.1 point); 1st drop in 3 qtrs
Private consumption: +0.1% (+0.1%); 3rd straight rise
Business investment: +0.3% (+0.5%); 1st rise in 2 qtrs
Public investment: -0.2% (-0.3%); 2nd straight drop
Private inventories: -0.2 point (-0.2 point)
Net exports (external demand): +0.7 point (+0.7 point)

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.