Japan's economy likely rebounded from recession in the final quarter of last year, data on Monday is set to show, giving a much needed boost to premier Shinzo Abe's efforts to steer the country out of decades of stagnation.
A return to steady growth will also allow the Bank of Japan to hold off on expanding monetary stimulus in coming months, even as slumping oil prices push inflation further away from its 2 percent target, analysts say.
Preliminary gross domestic product (GDP) data is forecast to show the world's third-largesteconomy grew an annualized 3.7 percent in October-December, according to a Reuters poll.
That would follow two straight quarters of contraction, blamed largely on a hit to private consumption from a sales tax hike in April last year, and underscore the BOJ's view theeconomy is on track for a moderate recovery despite a deteriorating global outlook.
"We expect exports to increase gradually, reflecting improvements in overseas economies," BOJ Deputy Governor Kikuo Iwata said this month. "Capital expenditure is also seen rising moderately given improvements in corporate revenues."
Japan's economy slid into recession in July-September last year, forcing Abe to delay a second sales tax hike initially scheduled for October 2015. The economic slump slowed Japan's quest to beat off nearly two decades of grinding deflation, and forced the BOJ into expanding monetary stimulus in October last year.
Consumer sentiment has barely improved and a recovery in household spending remains fragile, as wages fail to catch up to the rising cost of living from last year's tax hike and higher import costs from a weak yen.
Still, analysts expect private consumption, which makes up 60 percent of the economy, to have risen 0.7 percent in the final quarter largely as payback to the post-tax hike slump.
External demand is also set to add 0.3 percentage point to growth in the quarter, the Reuters poll showed, as the benefits of a weak yen finally start to drive up exports.
The data will be among factors the BOJ will scrutinize at its two-day rate review ending on Wednesday, where it is widely set to maintain the current pace of asset purchases in its monetary stimulus program.
The Cabinet Office will release the data at 8:50 a.m. on Monday (2850 ET on Sunday).
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