February 15, 2015 / 9:09 PM / 3 years ago

Japan's economy emerges from recession, growth weaker than forecast

TOKYO (Reuters) - Japan’s economy rebounded from recession to grow an annualized 2.2 percent in the final quarter of last year, giving a much-needed boost to premier Shinzo Abe’s efforts to shake off decades of stagnation even as the global outlook deteriorates.

Cranes are pictures against the sunset at a construction site in the Toyosu district in Tokyo, February 12, 2015. REUTERS/Thomas Peter

But the expansion was smaller than a 3.7 percent increase forecast in a Reuters poll, suggesting a fragile recovery for the world’s third-largest economy as consumer mood remained soft and uneven global growth weighed on exports.

Still, the return to growth will allow the Bank of Japan to hold off on expanding monetary stimulus in coming months, even as slumping oil prices push inflation further away from its 2 percent target, analysts say.

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.

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 blamed on the hit on consumption from a sales tax hike last April.

External demand added 0.2 percentage point to growth in the quarter, a sign the weak yen was finally driving up exports.

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.

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; Editing by Shri Navaratnam

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