Japan’s economy contracted more sharply than initially estimated in the third quarter, underscoring the challenges facing policymakers as weak business investment drags on growth. Despite the gloomier data, analysts widely believe the Bank of Japan (BOJ) will stay cautious and refrain from raising interest rates in the near term.
Revised figures show that GDP fell at a faster pace than earlier thought, driven largely by a deeper slump in capital expenditure. Companies, faced with rising costs, global uncertainty, and patchy domestic demand, scaled back investment in equipment and infrastructure — a move that further strained the country’s fragile recovery.
Private consumption, already weighed down by inflation and stagnant wage growth, offered little support. Exports also softened amid slowing demand from key markets, including China and Europe. Together, the indicators paint a picture of an economy losing momentum after a brief post-pandemic upswing.
Even so, the BOJ is unlikely to respond with a rate hike. Officials have signaled repeatedly that they need stronger evidence of sustained wage increases and stable inflation above their 2% target before considering a full departure from ultra-loose monetary policy. The central bank remains concerned that tightening too quickly could choke off the fragile recovery — especially with businesses showing reluctance to invest.
Instead, the BOJ is expected to maintain its patient, data-dependent approach, balancing inflation risks against the need to support growth. Economists say the central bank will watch closely for signs of wage acceleration in the coming months, which could justify a gradual shift in policy sometime next year.
For now, Japan’s economy faces an uphill climb. Without a revival in corporate investment and stronger household spending, growth is likely to remain under pressure — leaving the BOJ little choice but to wait and hope that the broader recovery gains traction.
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