(Bloomberg)—Japan’s economy expanded less than economists estimated in the fourth quarter, underlining the difficulty in stoking growth while export gains are undermined by weak investment and consumption at home.

Gross domestic product grew at an annualized 2.2 percent in the three months ended Dec. 31, the Cabinet Office said on Monday in Tokyo. The median projection of analysts surveyed by Bloomberg News was for a 3.7 percent increase. Nominal GDP, which is unadjusted for price changes, rose an annualized 4.5 percent from the previous quarter.

The softness of the rebound shows Prime Minister Shinzo Abe’s challenge to revive the world’s third-largest economy from two decades of stagnation. Wage rises and increased consumer spending are likely to be pivotal this year to spur activity beyond exports, where the lower yen has contributed to surging profits at companies like Toyota Motor Corp.

“Japan has clawed its way out of recession but we are looking for a modest acceleration in growth,” Izumi Devalier, an economist at HSBC Holdings Plc in Hong Kong said on Bloomberg TV. “This is not the picture of an economy that has a lot of spark behind it.”

The Japanese currency has weakened about 28 percent against the dollar since Abe took power in December 2012, helping boost exporters’ earnings. The drop in the yen has also increased import costs and bruised consumer sentiment.

Gross domestic product contracted by 6.7 percent in the second quarter and dropped a revised 2.3 percent in the following three months after the government raised the sales tax in April to help curb the world’s heaviest debt burden.

The currency advanced 0.1 percent to 118.67 versus the dollar at 9:09AM in Tokyo. The Topix share index rose 0.5 percent.

Private consumption rose 0.3 percent from the previous three months, compared with a revised 0.3 percent increase in the third quarter, today’s report showed.

Business spending gained 0.1 percent, compared with a revised 0.1 percent decline in the previous quarter, the data showed.

Net exports, or shipments less imports, contributed 0.2 percentage point to GDP growth.

Nissan Motor Co. raised its full-year profit forecast this month, citing the yen and U.S. deliveries. Toyota has said it may have a record profit of more than 2.1 trillion yen for the 12 months ending in March.

 

The Bank of Japan last month raised its growth forecast to 2.1 percent for the fiscal year starting in April, with Governor Haruhiko Kuroda saying slumping oil prices will boost growth.

Kuroda also said the drop in oil could delay inflation reaching the BOJ’s 2 percent target next fiscal year, and some economists see a risk of prices falling briefly this summer.

While the Bank of Japan is projected by economists to boost stimulus later this year, some officials inside the central bank think further monetary easing to shore up inflation would be a counterproductive step for now, according to people familiar with the talks. They are concerned it could trigger declines in the yen that damage consumer confidence.

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