Japan’s GDP expanded by 0.3% on a quarterly basis in Q3 2024, surpassing the flash data and market forecasts which anticipated a 0.2% growth. This positive result follows a downwardly revised 0.5% increase in Q2, marking the second consecutive period of quarterly growth for Japan. The resilience in economic performance is a reflection of the country’s ongoing recovery and adaptation to global economic conditions. The upward revision in Q3 GDP highlights stronger-than-expected business investment and less severe drag from net trade, which collectively contributed to the positive growth outcome.

Declining Business Investment and Improved Net Trade

One of the notable factors supporting Japan’s GDP growth in Q3 was the decline in business investment, which decreased by only 0.1% compared to an initial 0.2% fall in the preliminary reading. This marks a significant improvement from the previous quarter’s 1.1% rise. The moderation in business investment reflects cautious but stabilizing corporate spending, with firms managing to adapt to uncertainties in both domestic and international markets. Additionally, the negative impact from net trade was softer than initially expected, with a reduction of only 0.2 percentage points compared to the earlier consensus of 0.4 percentage points. Both exports and imports showed positive growth in Q3, with exports increasing by 1.1% (down from 1.5% in Q2) and imports rising by 1.8% (compared to 3.3% in Q2). This suggests an improving balance in external trade activities, with Japan benefiting from moderate global demand for its exports.

Resilient Private Consumption Amid Rising Wages

Private consumption remained a key driver of Japan’s economic expansion, growing by 0.7% in Q3, albeit slightly below the flash estimate and market consensus of 0.9%. This growth was buoyed by rising wages, which continue to support household spending. The resilience in private consumption despite a downward revision in the flash estimate indicates a stable consumer sentiment and suggests that households are managing to maintain spending levels even amidst global economic challenges. This underscores the importance of wage increases in supporting domestic demand, which is a vital component of Japan’s economic structure.

Muted Government Spending

In contrast, government spending remained subdued, increasing by only 0.1% in Q3, much less than the 0.5% rise suggested by the flash print and following a 1.0% gain in Q2. The muted government expenditure reflects cautious fiscal policies and possibly reduced stimulus measures amid growing fiscal constraints and a need for budgetary discipline. While government spending is a critical component of economic stimulus, its lower contribution in Q3 highlights the challenges Japan faces in balancing growth with fiscal prudence.

Overall, Japan’s GDP expansion in Q3 2024 demonstrates the country’s resilience in the face of global uncertainties. The positive growth outcome, supported by improved business investment, a less severe drag from net trade, and resilient private consumption, reflects a stabilizing economy. However, the subdued government spending indicates ongoing fiscal challenges. As Japan continues to navigate a complex global landscape, its economic policies will be crucial in sustaining this momentum and fostering long-term growth.