Newly revised data from the government has revealed that Japan's economy managed to avoid slipping into a technical recession. However, the growth in the last quarter of the year was not as strong as anticipated, raising concerns about the sluggish pace of economic recovery.

According to the Cabinet Office, Japan's revised gross domestic product (GDP) expanded by 0.4% on an annualized basis in the October-December period compared to the previous quarter. This is an improvement from the initial estimate, which predicted a 0.4% contraction.

Despite this positive revision, the growth fell short of economists' expectations, who had forecasted a 1.1% increase. On a quarter-on-quarter basis, the GDP grew by 0.1%, contrasting with the initial report of a 0.1% decline.

Saisuke Sakai, a senior economist at Mizuho Research and Technologies, noted, "The headline shows an upward revision, but there are concerns about the lackluster domestic demand, particularly in consumption."

The revision was primarily anchored by a 2.0% increase in capital expenditure from the previous quarter, surpassing the preliminary estimate of a 0.1% decrease. However, it still fell short of the median market forecast, which anticipated a 2.5% rise.

Private consumption, which accounts for about 60% of Japan's economy, declined by 0.3% in the October-December period, slightly worse than the initial estimate of a 0.2% drop. Factors such as reduced spending on seafood and household appliances contributed to this decline, as per a Cabinet Office official.

Anticipation is mounting in the market regarding the Bank of Japan's (BOJ) decision, with some speculating that it might abandon its negative interest rates this month. Recent hawkish comments from BOJ board members, suggesting progress towards the central bank's 2% inflation target, have fueled these expectations.

Despite weaknesses revealed in the data, Marcel Thieliant, head of Asia-Pacific at Capital Economics, predicts that the BOJ may move away from negative interest rates next month. He cited growing prospects of significant pay hikes during annual wage talks with labor unions.

Thieliant added, "The Bank of Japan tends to prioritize its own consumption activity index and does not appear overly concerned about recent sluggishness in activity."

The BOJ is scheduled to convene a two-day policy-setting meeting on March 18-19. Japan, currently ranked as the world's fourth-largest economy behind Germany, witnessed a 22nd consecutive month of shrinking real wages in January. Additionally, household spending in the same month experienced its largest year-on-year drop in 35 months.

External demand remained unchanged from the preliminary reading, contributing 0.2 percentage points to real GDP.

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