Japan’s economy grew faster than initially estimated in the second quarter, strengthening expectations that the Bank of Japan (BOJ) could proceed with another interest rate hike later this month.
Cabinet Office data released on Tuesday showed gross domestic product expanded at an annualised 1.4% in the April-June quarter, up from the preliminary estimate of 1.1% but below economists’ median forecast of 1.6%.
On a quarter-on-quarter basis, the economy grew 0.4%, compared with the initial 0.3% estimate and in line with economists’ expectations.
The upward revision was largely supported by business spending, with capital expenditure falling 0.9% in the quarter compared with the earlier estimate of a 1.2% decline. The latest figure was slightly weaker than economists’ forecast for a 0.8% decline.
The revised GDP data came after separate figures last week showed Japanese companies increased spending on plant and equipment by 1.6% in the second quarter from a year earlier.
Private consumption, which accounts for more than half of Japan’s economy, was unchanged and matched the preliminary reading.
External demand contributed 0.5 percentage point to quarterly GDP growth, unchanged from the initial estimate, while domestic demand reduced growth by 0.1 percentage point, an improvement from the 0.2 percentage point drag previously reported.
Daiwa Securities senior economist Kento Minami said the latest growth figure showed the economy remained resilient despite potential pressure from the Middle East situation.
“Given that the April–June quarter was a period when the Middle East situation could have exerted downward pressure, the fact that growth ended up around this level is notable,” said Kento Minami, senior economist at Daiwa Securities. “It is not at all a situation where we need to worry about the economy … That means the Bank of Japan can definitely move ahead with rate hikes.”
BOJ Rate Decision In Focus
Markets are broadly expecting the BOJ to raise rates at its September meeting, although investors remain focused on how the Middle East conflict and previous rate increases could affect Japan’s economy.
The latest data also comes alongside signs of stronger wage growth. Japan’s inflation-adjusted real wages rose 2.4% in July from a year earlier, marking their biggest increase since May 2021 and extending the run of annual gains to seven months.
The BOJ raised its policy rate to 1% in June, its highest level in 31 years, but remains under pressure to tighten policy further amid price pressures linked to the Middle East conflict and weakness in the yen.
According to money market broker Tokyo Tanshi, swap rates were pricing in a 98% probability of a 25-basis-point rate increase to 1.25% at the BOJ’s September meeting.
Markets have also fully priced another increase to 1.5% by the January meeting.
Reuters
