Japan has side-stepped its second recession in as many years after revised data Tuesday showed that the economy actually grew last quarter. The stronger-than-expected revision of a 0.3 percent expansion for the July-September period comes several weeks after initial estimates showed a 0.2 percent contraction - the second consecutive quarterly decline.
The initial data threatened to deal an another blow to Prime Minister Shinzo Abe, who has staked his reputation on kick-starting the world's number three economy with a policy blitz of fiscal spending, aggressive monetary policy easing and structural reforms - dubbed Abenomics. Since the weak initial GDP figures were published, upbeat factory output and capital spending data brightened hopes for the economy. On an annualised basis, which stretches the data across a full year, Japan's Gross Domestic Product expanded by 1.0 percent in the third quarter, the figures showed. In another bright spot, separate figures Tuesday showed that Japan's current account - the broadest measure of its trade with the rest of the world - improved again with a 1.46 trillion yen ($11.8 billion) surplus.
However, economists were cautious about the state of Japan's recovery, as consumer spending remained weak with little in the way of big wage hikes to put more money in their pockets. "The data confirmed that the Japanese economy is growing gradually," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "And while severe pessimism is receding, consumption - a key driver for the economy - is still weak. Without more spending and higher wages, the engine of the economy won't be ignited."
Japan's economy fell into a brief recession in 2014 after consumers tightened their belts as Tokyo hiked the country's consumption tax to help pay down a massive national debt. That downturn spurred the Bank of Japan to sharply increase its already massive bond-buying programme - a cornerstone of Abenomics - effectively printing money to spur lending. But the moves, and Abe's lurch to overhaul Japan's highly regulated economy, have been slow going as the conservative premier marks his third year in office later this month.
The central bank holds its last meeting of 2015 next week, when its closely watched Tankan business sentiment survey is also due. BoJ chief Haruhiko Kuroda has been forced to roll back the timeline for hitting a 2.0 percent inflation rate until at least next year as prices have stalled - delaying an exit from years of deflation. The latest GDP figures may ease some pressure on BoJ policymakers to expand their massive 80 trillion yen ($653 billion) annual stimulus programme.
"The Bank of Japan will likely leave policy settings unchanged at its January meeting unless next week's Tankan (survey of business confidence) disappoints significantly," research house Capital Economics said in a commentary. "However, we still think that underlying inflation will moderate in coming months, which would put the Bank under renewed pressure to step up the pace of easing."
Japan, once boasting Asia's biggest economy with internationally known brands, has been overtaken by rival China, as years of deflation weighed on growth. The country is struggling with a tough demographic outlook that is expected to see its population shrink by the tens of millions in coming decades, meaning fewer workers to support a growing number of retirees.
While years of stagnant or falling prices may sound like a good thing for consumers, it acts as an incentive to delay buying goods in the hopes of getting them cheaper down the road. That, in turn, weighs on companies' expansion and hiring plans, taking a bite out of the wider economy.
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