Japan’s economy avoids recession one week before BoJ meeting

Japan revised economic data higher, reversing a quarterly contraction into positive growth and thereby avoiding a technical recession, an outcome that supports the case for the central bank to end its negative interest rate policy this month or next.

Gross domestic product expanded at an annualized pace of 0.4% in the final three months of last year, the Cabinet Office reported on Monday, reversing a 0.4% retreat initially reported. Economists had forecast the updated report would show 1.1% growth. An upward revision to capital investment figures to reflect 2% growth was a key driver.

Monday’s data support the Bank of Japan’s view that the economy continues to recover moderately with companies willing to invest. A majority of economists expects the BOJ to scrap the negative interest rate with its first hike since 2007 in March or April. Encouraging signs of wage growth this year have increased bets on the rate hike coming on March 19, when the bank concludes its next policy meeting.

Strong corporate capital investment, reported earlier in another report, powered growth last quarter, pushing the economy back into expansion. Consumer spending, on the other hand, was revised to show a slightly deeper decline at 0.3%.

Inflation has continued to outpace wage gains this year, putting a burden on household budgets and crimping outlays.

The yen was little changed after the data, while volatile overnight swaps that signal rate expectations showed a 65% change of the BOJ hiking in March, also largely unmoved.