TOKYO Japan's economy contracted less than initially estimated in the final quarter of 2015 but private consumption remained weak, underscoring the challenges facing premier Shinzo Abe in restoring growth amid intensifying overseas headwinds.
Analysts expect growth to have rebounded only modestly in the current quarter as China's slowdown clouds the outlook for global demand, keeping the Bank of Japan under pressure to expand monetary stimulus, although the returns available from that measure appear to be diminishing.
Sluggish growth could also heighten market speculation that Abe may delay a second consumption tax hike to 10 percent from 8 percent scheduled in April next year, some analysts say.
The world's third-largest economy shrank an annualised 1.1 percent in October-December, less than a preliminary estimate of a 1.4 percent contraction, Cabinet Office data showed on Tuesday. That compared with a median market forecast for a revision to a 1.5 percent contraction.
"Economic indicators in January are weak. The economy likely won't rebound significantly in January-March," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
"The government may adopt some form of stimulus steps and may delay the sales tax hike if growth is weak in January-March and prospects emerge that it will stay stagnant in April-June."
Growth in capital expenditure was revised up to a 1.5 percent increase from a preliminary 1.4 percent rise, the revised gross domestic product (GDP) data showed.
Private consumption fell 0.9 percent, slightly more than a preliminary 0.8 percent decline.
Taken together, domestic demand shaved 0.4 percentage point off growth, against a preliminary negative contribution of 0.5 point.
Economy Minister Nobuteru Ishihara said the data showed some weakness in consumption, but there was no change to the government's view that Japan's economic fundamentals remained in good shape.
The BOJ stunned markets in January by deploying negative interest rates to prevent global market volatility from hurting already frail business sentiment.
But the policy has failed to boost stock prices or arrest an unwelcome yen rise, drawing criticism from lawmakers that it would have little positive effect on the economy.
BOJ Governor Haruhiko Kuroda said on Monday the central bank will scrutinise the effects of negative interest rates on the economy for the time being, suggesting that no immediate expansion of stimulus was forthcoming.
(Reporting by Leika Kihara; Additional reporting by Kaori Kaneko; Editing by Eric Meijer)
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