The latest economic data showed the Japanese economy expanded by 0.6% over the quarter (an annualised gain of 2.2%) after two consecutive quarters of negative growth.
“While this is good news, markets had been looking for a stronger gain so there was a degree of disappointment,” Wade wrote in a research note.
Several reports said the market was expecting 3.7% annual growth.
“The difficult question is where this will leave the Bank of Japan’s quantitative easing programme. Rising output indicates that further stimulus is not required; however, lower inflation suggests the opposite, given the authorities’ 2% [inflation] target.
“Should the BoJ see the fall in inflation as purely a function of lower oil prices, in the same way as the US Federal Reserve and Bank of England do, then we are unlikely to see further action in 2015.”
“Alternatively, if they take an European Central Bank-style approach and focus on the headline rather than the core rate, further easing of policy is in the offing.”
According to Wade, the bright spot was export growth, which gained 2.7% in the quarter. He believes the competitiveness of the Japanese yen played a role in fuelling exports.
Schroders remains positive on the outlook for Japan.
“We expect trade to remain positive as Japanese firms gain market share in global export markets. But for a more robust recovery, we need to see better domestic demand.
“Many are pessimistic on this, but the fall in the oil price will feed through into lower inflation and alongside continued gains in worker pay, this should translate into stronger real income and spending growth. Investment will probably take longer to turn as it tends to lag rather than lead growth.”