Japan’s economy expanded faster than initially estimated in the April-June quarter, helped by a smaller-than-expected decline in business investment, revised government data showed on Tuesday, according to a report by Reuters.
According to data from Japan’s Cabinet Office, gross domestic product (GDP) grew at an annualised 1.4% in the second quarter, up from the preliminary estimate of 1.1%. However, the reading fell short of the 1.6% median forecast in a Reuters poll of economists.
On a quarter-on-quarter basis, Japan’s economy grew 0.4%, matching economists’ expectations and exceeding the initial 0.3% estimate.
The upward revision was largely driven by capital expenditure, which declined 0.9% in the second quarter compared with the preliminary estimate of a 1.2% contraction. Economists had expected a 0.8% decline.
Private consumption, which accounts for more than half of Japan’s economy, was unchanged from the previous quarter, in line with the initial estimate.
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External demand contributed 0.5 percentage point to overall GDP growth, unchanged from the preliminary reading. Domestic demand reduced growth by 0.1 percentage point, an improvement from the initial 0.2 percentage-point drag.
The revised GDP figures come as markets focus on the Bank of Japan’s policy outlook, with expectations growing that the central bank could raise interest rates at its meeting next week. The report stated that investors are assessing whether the economy can withstand the impact of the Middle East conflict and the effects of previous monetary tightening.
Recent corporate spending data also pointed to underlying resilience in business investment. Japanese companies increased spending on plant and equipment by 1.6% in the second quarter from a year earlier, data released last week showed.
Meanwhile, wage data released on Tuesday provided another positive signal for household purchasing power. Inflation-adjusted real wages rose 2.4% in July from a year earlier, marking their strongest increase since May 2021 and extending the streak of annual gains to seven months.
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The stronger economic and wage data could reinforce expectations for further monetary tightening. The Bank of Japan raised its policy rate to 1% in June, its highest level in 31 years, as it continued to move away from its ultra-loose monetary policy.
Markets are now pricing in a high probability of another rate increase. According to money market broker Tokyo Tanshi, swap rates indicated a 98% probability that the BOJ would raise its policy rate by 25 basis points to 1.25% at its September meeting.
Traders are also fully pricing in another increase to 1.5% by the January policy meeting. the report stated.
The BOJ’s decision will be closely watched as policymakers balance persistent inflationary pressures, the yen’s recent weakness and risks to economic activity stemming from geopolitical tensions and higher energy costs.
