Japan's economic expansion slowed last year despite a bump in exports and capital investment. Weak consumer spending proved a drag on growth, fueling renewed concerns about Tokyo's faltering war on deflation.
According to Japan's Cabinet Office, the country's gross domestic product (GDP) expanded one percent in 2016, after four consecutive quarters of growth - the longest expansion since 2013. Nevertheless, the annual figure released in Tokyo on Monday was lower than the 1.2 percent growth registered in 2015.
The expansion was primarily driven by government spending measures and a drop in the yen, while Japanese consumers kept a tight lid on spending.
Izumi Devalier, chief economist at Merrill Lynch Japan Securities, said 2016 GDP growth was clearly "export-driven."
"Private consumption has been pretty weak still, and unless we get private consumption fired up, it's hard to see growth accelerating very strongly from here," he told the news agency AFP.
The world's third largest economy has been suffering from more two decades of weak growth and falling prices, also known as deflation. The phenomenon emerges when consumers withhold spending in anticipation of further falling prices, unleashing a downward spiral of lower investment, rising unemployment and weakening growth.
'Abenomics' in the focus
Japanese Prime Minister Shinzo Abe has been trying to win the war on deflation with a policy mix of massiv monetary easing, higher government spending and curbing bureaucracy.
This resulted in a depreciation of the yen, helping exporters by making their goods cheaper on world markets. The yen has lost about 10 percent of its value against the dollar over the past three months, boosting Japan's shipments abroad by 2.6 percent in the final quarter of 2016.
Businesses also appear to be feeling more confident now as capital spending grew 0.9 percent, reversing a decline in the previous quarter.
Therefore, analysts expect the Japanese economy to accelerate its expansion in the course of 2017. However, Marcel Thieliant at Capital Economics warned that a further declining yen might dampen consumer spending even further.
"We expect the yen to weaken further towards 130 by the end of this year, which will result in a surge in prices of imported goods and undermine households' purchasing power," he said in a note to investors.
Japan's economic prospects are also clouded by the protectionist rhetoric of the new US president Donald Trump, who has accused Japan as well as a number of other countries, including Germany, of manipulating their currencies lower to win a competitive advantage over the United States.
During a visit of Abe to Washington at the weekend, however, Trump dropped his previously harsh criticism towards Tokyo.
uhe/jd (dpa, AFP)