Japan's growth disappoints casting doubt on 'abenomics'

Shinzo Abe initiated a radical package of economic measures to kick-start Japanese economy

Japanese Prime Minister Shinzo Abe delivers his special address at the opening session of the World Economic Forum in Davos (Getty Images)

Japan suffered a setback today as the world’s third-biggest economy slowed sharply at the end of last year — putting pressure on its central bank to pump billions more into recovery efforts.

Quarterly growth of 0.3 per cent between October and December was well below expectations of a 0.7% increase despite a fourth successive quarter of growth for its economy. Economists expect growth to pick up again in the present quarter as shoppers rush to beat an April VAT hike.

But further disappointments could put the heat on prime minister Shinzo Abe and the Bank of Japan to act again after the shock and awe tactics to jumpstart Japan out of its economic malaise last year.

Japan’s trade position has weakened dramatically despite a falling yen as the nation is now much more reliant on energy imports after the 2011 tsunami which shut down its nuclear capacity. Slower growth in China and other major markets meanwhile has taken a toll on exports, sapping growth at a critical time for Abe’s recovery strategy.

ING Bank economist Rob Carnell said: “The arguments for the BoJ to provide a further dollop of yen weakness through some pre-emptive expansion of QE looks to be gathering strength.”