Although undercut by soft consumer spending, Japan's real gross domestic product (GDP) expanded by 0.7% in the fourth quarter, or by a 2.8% annual rate, reported the Cabinet Office on Monday.

However, private consumption, or consumer spending, inclined a modest 0.1% in the fourth quarter, a challenge to Tokyo and central bank plans to boost wages and consumption in the world's fourth-largest economy.

Private non-residential investment in Japan, or business capital spending, rose 0.5% in the fourth quarter, reversing a decline in the third quarter.

Export of goods and services in the fourth quarter rose a real 1.1% from the third quarter, added the Cabinet Office.

On year, Japan's GDP in 2024 grew a scant 0.1% from 2023, due to recessionary quarters in 2024's first half.

The Bank of Japan in late January estimated that the nation's GDP in fiscal 2025, starting April 1, will expand by 1.1% on year, indicating the central bank expects the fourth quarter expansion to be sustained.

The Bank of Japan has reiterated its intentions for real wage growth in the nation to spur private consumption and consumer spending, leading to a virtuous cycle of spending and growth.

However, the modest increase in fourth-quarter consumer spending is one indicator that Japan's retail spenders are still holding onto their wallets.

The Bank of Japan will likely raise its key policy rates in 2025, especially if inflation remains above target, and if pending wage-negotiation rounds are favorable to workers, said ING Think

The nation's Shunto wage negotiations take place in Spring, while Japan's inflation rate, as measured by the consumer price index (CPI) has remained near 3%, above the Bank of Japan's 2% target.

If the 2025 Shunto round results in higher wages, and inflation remains firm, the Bank of Japan may raise its key policy rate as early as May, said ING Think.