Japan’s economy narrowly avoided falling into recession at the end of last year, thanks to strong business spending. This is a positive sign for the Bank of Japan (BOJ) as it considers when to raise interest rates for the first time since 2007.

The Cabinet Office reported on Monday that gross domestic product (GDP) grew at an annualized pace of 0.4% in the final three months of 2023. This reverses an earlier report of a 0.4% decline. Economists had predicted that the revised figures would show growth of 1.1%.

The BOJ has been under pressure to tighten monetary policy as inflation has risen above its 2% target. However, the bank has been reluctant to raise rates because of the fragile state of the economy.

The latest GDP figures suggest that the economy is on a more solid footing than previously thought. This could give the BOJ the confidence to raise rates sooner rather than later.

A rate hike would be a significant shift for the BOJ, which has kept interest rates ultra-low for many years. It would signal that the bank is now more concerned about inflation than about supporting economic growth.

It remains to be seen whether the BOJ will actually raise rates this year. But the latest GDP figures have certainly increased the chances of a rate hike happening in the near future.