Japan Economic Update

Japan's economy grew at a slower 3.0% in the October-December quarter, government data showed Monday, as the coronavirus pandemic weighed on the world's third-largest economy.

The economy shrank 4.8 percent in 2020 -- its first annual contraction since 2009.

Last year, virus restrictions and a 2019 consumption tax hike forced Japan into recession before a third-quarter rebound to 5.3 percent growth, a figure revised upwards slightly on Monday.

Japan emerged from recession in November after recording its worst contraction since comparable figures began to be collected in 1980, exceeding even the pain of the 2008-9 global financial crisis.

Domestic demand and net exports contributed to growth in the fourth quarter, the cabinet office said, adding that spending on housing and corporate investment rebounded.

While Monday's figure for the fourth quarter was above the 2.4 percent predicted by economists polled by Bloomberg, it sounds the alarm for the first quarter of 2021.

Covid-19 cases began surging in Japan in late December, prompting the government to impose a virus state of emergency in much of the country including Tokyo and Osaka.

"A decline in GDP appears unavoidable in Q1 2021 due to the state of emergency declared by the government in a number of Japanese prefectures," said Naoya Oshikubo, senior economist at SuMi Trust, in a note published ahead of Monday's figure.

Japan's virus measures are limited, with bars and restaurants requested but not obliged to close by 8pm and working from home strongly recommended. There are no blanket stay-at-home orders.

Oshikubo said the relative leniency of these emergency measures could help mitigate the expected contraction in the first quarter.