TOKYO — Japan’s economy limped back to meager growth in the fourth quarter, significantly missing market expectations in a key test for Prime Minister (PM) Sanae Takaichi’s government as cost-of-living pressures drag on confidence and domestic demand.

Fresh off a sweeping election victory, Ms. Takaichi’s administration is preparing to ramp up investment through targeted public spending to shore up consumption and revitalize economic growth.

Monday’s data bring sharp focus to the challenge at hand for policymakers at a time when the Bank of Japan (BoJ) has reiterated its pledge to keep raising interest rates and normalize monetary settings from years of ultra-low borrowing costs amid persistent inflation and a weak yen.

“PM Takaichi’s efforts to reflate the economy via looser fiscal policy look prescient,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

Gross domestic product (GDP) in the world’s fourth-largest economy increased an annualized 0.2% in the October-December quarter, government data showed, well short of a median estimate of a 1.6% gain in a Reuters poll. It barely scraped back to growth from a larger revised 2.6% contraction in the previous quarter.

The reading translates into a quarterly rise of 0.1%, also weaker than the median estimate of a 0.4% uptick.

“It shows that the economy’s recovery momentum is not very strong,” Meiji Yasuda Research Institute economist Kazutaka Maeda said. “Consumption, capital expenditure (capex) and exports — areas we hoped would drive the economy — just haven’t been as strong as we expected.”

The surprisingly soft momentum will keep investors on alert for Ms. Takaichi’s campaign pledge to suspend a consumption tax, an issue that sparked turmoil in Japanese markets worried about fiscal slippage in a nation with the heaviest debt burden in the developed world.

“In fact, sluggish economic activity increases the chances that Takaichi will not only press ahead with suspending the sales tax on food but enact a supplementary budget during the first half of the fiscal year that starts in April already rather than wait until the end of this year,” Capital Economics’ Mr. Thieliant said.

Japanese stocks stuttered in the wake of the GDP data, while bonds were subdued.

SLOWER RATE HIKES?
Analysts project Japan will continue to expand at a gradual pace this year, though the fourth quarter’s weak outcome suggests the economy might struggle to fire on all cylinders.

“Whether the economy can achieve sustainable growth really depends on whether real wages can firmly return to positive growth,” Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, said.

A survey this month by the Japan Center for Economic Research showed 38 economists forecast an average annualized GDP growth of 1.04% in the first quarter and 1.12% in the second quarter.

Economists say the latest GDP report is unlikely to affect the Bank of Japan’s policy decisions, but Ms. Takaichi’s historic election win has heightened market attention to whether the dovish premier will renew her calls for interest rates to be kept low.

“Although GDP posted positive growth this time, the momentum was weak, and with the need to assess the impact of the December rate hike, the likelihood of an additional hike in the near term appears to have receded,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The country’s inflation dynamic underscored the policy tensions between the government and central bank.

Mitsubishi UFJ’s Mr. Kobayashi, for instance, expects the central bank to prioritize bringing inflation to heel.

“Rather than this rate hike causing the economy to stall, the BoJ’s focus is likely to be on how to contain inflation,” he said.

Private consumption, which accounts for more than half of economic output, rose 0.1% in October-December, matching market estimates.

It cooled from the 0.4% rise in the previous quarter, indicating that persistently high food costs remain a drag on household spending.

TRUMP FACTOR
Capital spending, a key driver of private demand-led growth, also rose at a slow pace of 0.2% in the fourth quarter, versus a rise of 0.8% in the Reuters poll.

To be sure, historically capex has been a volatile data set, and future revisions could point to the economy carrying more momentum into 2026 than initial estimates suggest.

That still leaves the economy with a lot of catching up to do, especially as its key manufacturing industry struggles to adapt to a protectionist US administration under President Donald J. Trump.

Indeed, net external demand, or exports minus imports, contributed nothing to fourth-quarter growth, versus a 0.3-point drag in the July-September period.

Exports did post a milder drop after the US formalized a baseline 15% tariff on nearly all Japanese imports, down from 27.5% on autos and initially threatened 25% on most other goods.

“The impact of tariffs appears to have peaked in July-September, but judging from the latest results, there is at least some possibility that firms will continue to take a somewhat cautious stance going forward,” Meiji Yasuda’s Mr. Maeda said. — Reuters

HILL AIR FORCE BASE, Utah — The US Departments of Energy and Defense on Sunday for the first time transported a small nuclear reactor on a cargo plane from California to Utah to demonstrate the potential to quickly deploy nuclear power for military and civilian use.

The agencies partnered with California-based Valar Atomics to fly one of the company’s Ward microreactors on a C-17 aircraft — without nuclear fuel — to Hill Air Force Base in Utah. Energy Secretary Chris Wright and Under Secretary of Defense for Acquisition and Sustainment Michael Duffey were on the C-17 flight with the reactor and its components and hailed the event as a breakthrough for US nuclear energy and military logistics.

“This gets us closer to deploy nuclear power when and where it is needed to give our nation’s warfighters the tools to win in battle,” Mr. Duffey said.

President Donald J. Trump’s administration sees small nuclear reactors as one of several ways to expand US energy production. Mr. Trump last May issued four executive orders aimed at boosting domestic nuclear deployment to meet growing demand for energy for national security and competitive artificial intelligence advancements.

The energy department in December issued two grants to help accelerate development of small modular reactors.

Proponents of microreactors also have touted them as energy sources that can be sent to far-flung and remote places, offering an alternative to diesel generators which require frequent deliveries of fuel. But skeptics have argued that the industry has not proven that small nuclear reactors can generate power for a reasonable price.

“There is no business case for microreactors, which — even if they work as designed — will produce electricity at a far higher cost than large nuclear reactors, not to mention renewables like wind or solar,” said Edwin Lyman, director of nuclear power safety at the Union of Concerned Scientists.

The energy department plans to have three microreactors reach “criticality” — when a nuclear reaction can sustain itself — by July 4, Mr. Wright said.

The microreactor at Sunday’s event, a little larger than a minivan, can generate up to 5 megawatts of electricity, enough to power 5,000 homes, according to Valar Chief Executive Officer Isaiah Taylor. It will start operating in July at 100 kilowatts and peak at 250 kilowatts this year before ramping up to full capacity, he said.

Valar hopes to start selling power on a test basis in 2027 and become fully commercial in 2028. Although private industry funds its own development of nuclear technology, it also needs the federal government “doing some enabling actions to allow fuel fabrication here and uranium enrichment here,” he said.

Fuel for Valar’s reactor will be transported from the Nevada National Security site to the San Rafael facility, Mr. Wright told reporters.

However, even small generators result in a significant amount of radioactive waste, Mr. Lyman said. Other experts have said designers are not compelled to consider waste at inception, beyond a plan for how it will be managed.

Although disposal of nuclear waste remains an unresolved issue, the energy department is in talks with a few states, including Utah, to host sites that could reprocess fuel or handle permanent disposal, Mr. Wright said. — Reuters

SYDNEY — Heavy rain and strong winds disrupted flights, trains, and ferries, forcing the closure of roads across large parts of New Zealand’s North Island on Monday, while snapping power links to tens of thousands.

Domestic media reported a few flights had resumed operating by afternoon from the airport in Wellington, the capital, although cancellations were still widespread after airport authorities said most morning flights were disrupted.

Air New Zealand said it hoped to resume services when conditions ease later on Monday, after it paused operations at Wellington, Napier, and Palmerston North airports.

Online images showed flooded semi-rural neighborhoods, inundated homes, trees fallen on vehicles and collapsed sections of road after waters receded.

The weather had been “absolutely terrifying,” Marilyn Bulford, who lives in the rural town of Bunnythorpe, about 160 kilometers (100 miles) north of Wellington, told the New Zealand Herald newspaper.

“I’ve never seen huge trees blowing around this much,” she added. “It’s so bad. I haven’t seen anything like it.”

The Wellington region accounted for more than half the 852 emergency calls received overnight, said Ken Cooper, assistant national commander of the emergency services.

“We had a very busy night, and our firefighters are continuing to respond to calls,” he added.

More than 30,000 properties were without power, including about 10,000 customers in Wellington, said authorities, who have urged motorists to stay off roads, while several schools were closed as emergency crews tackled widespread damage.

The storm is forecast to bring heavy rains as it heads for the east coast of the South Island on Tuesday, the weather bureau said, with authorities warning of further disruption.

Raw sewage discharged after this month’s failure of Wellington’s main wastewater treatment plant in a storm was washed back onto the south coast by the weekend storm, in an incident some residents called a “poonami” on social media.

A low-pressure system east of the North Island has battered several regions since the weekend, bringing heavy rain and severe gales. A man was found dead on Saturday in a submerged vehicle on a highway.

The storm follows six deaths last month in a landslide triggered by heavy rains at Mount Maunganui on the North Island’s east coast, bringing down soil and rubble on a site crowded with families on summer holidays. — Reuters