Japan’s pace of growth slower than expected in Oct-Dec quarter

Japan's economy grew at a pace slower in the October-December quarter than economists expected, highlighting risks to the recovery as the first stage of the consumption tax increase loomed in April.

Gross domestic product grew an annualised 1 per cent from the previous quarter, the Cabinet Office said today.

While capital spending rose by the most in two years and consumption increased, trade deficits from rising imports and limited gains in exports pulled the expansion down.

Weaker than forecast growth might add to speculation that the Bank of Japan would expand stimulus in coming months and add pressure on prime minister Shinzo Abe to further build on his plans to make the nation more competitive.

Bloomberg quoted Takuji Okubo, chief economist at Japan Macro Advisors as saying the weak export performance gave a sense of risk that the Japanese economy might significantly stall after April.

He added, prime minister Abe would need to be quick in showing to the market that he could deliver reform.

Meanwhile, experts sounding a cautionary note said domestic spending that had sustained the  economy would come under pressure with an increase in Japan's national sales tax in April that would hurt consumption.

According to the data, housing investment was up 4.2 per cent, consumer spending rose 0.5 per cent and capital investment by companies increased 1.3 per cent.

Government spending too was up though at a slower pace than in the previous quarter.

Also a small rise in the value of exports, at 0.4 per cent would not offset a 3.5 per cent surge in imports, leaving trade as a net negative for the economy.

Meanwhile, consumers would be expected to continue supporting growth in the current quarter, before the 3 percentage-point tax rise took effect.

The increase which would come as the first since 1997, was encouraging big purchases by consumers but a slowdown was imminent according to experts.

They point out the test of the ''Abenomics'' recovery would come after the economic expansion phase triggered by stimulative economic policies of Shinzo Abe, prime minister came to an end.

According to commentators, the slower than projected growth could increase pressure on the Bank of Japan, which is in a two-day policy meeting that started yesterday, to further loosen its already highly accommodative monetary policy.