An increase in raw material prices and an increase in Omicron infections have clouded the outlook for a long-term recovery.
In the last three months of 2021, Japan's economy recovered as a result of declining coronavirus cases, which helped to boost consumption. However, increasing raw material prices and an increase in Omicron variant infections cast doubt on the recovery's long-term prospects.
Increased tensions in Ukraine have also been raised by Bank of Japan Governor Haruhiko Kuroda as a new threat to the central bank's prediction for a gradual economic rebound, according to the governor.
The world's third-largest economy grew an annualised 5.4 percent in the three months from October to December, after a corrected 2.7 percent contraction in the previous quarter, according to official statistics released on Tuesday. This was below the median market projection of a 5.8 percent expansion.
Some economists predict that the economy will contract again in the current quarter as a result of an increase in COVID-19 cases that prevent families from purchasing and supply chain interruptions that reduce industry activity.
In January-March, the economy is expected to slow, and it might even decrease, depending on how the Omicron variation impacts consumption in the service sector, according to Takeshi Minami, chief economist at Norinchukin Research Institute.
A 2.7 percent increase in private spending, which accounts for more than half of Japan's gross domestic product, drove the country's economic development in the most recent quarter, according to official figures (GDP).
Consumer expenditure is increasing.
Following the lifting of coronavirus restrictions in Japan in October, consumer spending increased by 3.2 percent, above market expectations of a 2.2 percent increase.
In addition, capital expenditure increased by 0.4 percent, which was generally in line with market expectations. The increase in external demand contributed 0.2 percentage point to growth, indicating that exports were continuing to profit from the global recovery.
Several economists, like Wakaba Kobayashi of the Daiwa Institute of Research, believe that the recovery of the economy has resulted in a significant increase in service consumption, such as for hotels, restaurants, and entertainment.
Japan's recovery, on the other hand, continues to lag behind other major economies, prompting the Bank of Japan to maintain ultra-loose monetary policy even while other central banks consider raising interest rates.
As of late 2019, the country's seasonally adjusted real GDP was around 541 trillion yen ($4.69 trillion), which is still below the pre-pandemic level.
Due to an unprecedented increase of Omicron instances, the government was obliged to apply flexible restrictions in most regions and block borders, which is likely to have depressed consumption since the beginning of the year.
Increasing numbers of illnesses have also prompted certain firms to suspend work, resulting in output interruptions and delivery delays at major corporations such as Toyota Motor Corp.
SOURCE: NEWS AGENCIES
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