Japan’s economy has closed out 2016 with slower than expected growth despite a boost to exports from a weaker yen as domestic demand came up short in the fourth quarter.

Gross domestic product expanded by a seasonally adjusted 0.2 per cent quarter-on-quarter in the three months Ended December, down from 0.3 per cent in the September quarter and coming in just below a median forecast from economists surveyed by Reuters predicting growth would hold steady.

Year-on-year GDP rose 1 per cent in the fourth quarter, dropping from 1.3 per cent growth in the previous quarter and missing expectations of 1.1 per cent growth. The latest quarterly growth rate brought Japan’s annual GDP growth in 2016 to 1 per cent.

Japan’s economy appears to have underperformed despite the yen softening 15.4 per cent against the dollar from ¥101.35 to ¥116.96 in the fourth quarter, much of which came in the wake of the US presidential election. While dollar strength has wavered in early 2017 the weaker yen did appear to provide a boost to Japan’s exports in Q4: net exports contributed 0.2 percentage points to headline growth, with a 2.6 per cent rise in exports partly offset by imports, which rose 1.3 per cent.

However, private consumption and household spending were flat from the previous quarter, while residential investment grew 0.9 per cent after shrinking 0.3 per cent in the September quarter. With government consumption rising 0.4 per cent for the period, that shook out to headline domestic demand that was unchanged from Q3.

Ahead of the release, Barcalys had tipped GDP to grow 0.3 per cent quarter-on-quarter, up slightly from a previous estimate of 0.2 per cent after net exports exceeded expectations.

“We were somewhat cautious about the sustainability of that export recovery and looked for a one-off reactionary downturn in net exports in Q4. However, real exports exceeded our expectations, accelerating to 2.1% q/q with export volumes showing solid increases not only to Asia, but also to the US and Europe”, analysts at the bank said.

The yen was relatively unmoved, having already weakened in early morning trade. It was 0.6 per cent weaker at ¥113.92 per dollar following the release of GDP data, having softened as much as 0.7 per cent.

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