Japan Q2 GDP beats forecast, supporting case for BOJ rate hike

Japan's economy expanded at a faster pace than initially anticipated in the second quarter, according to revised data released on Tuesday. Gross domestic product (GDP) grew at an annualized rate of 1.4% in April-June, surpassing the forecasted 1.1% but indicating a slowdown from the 1.8% expansion in the previous quarter. This upgraded reading was the result of stronger external demand, which increased by 0.5% quarter-on-quarter, a notable acceleration from the 0.3% growth observed in the first quarter.

Private consumption, however, remained flat, aligning with the initial forecast of no change after a 0.3% increase in the preceding quarter. Capital expenditure, on the other hand, contracted by 0.9%, which was less severe than the anticipated 1.2% decline. The GDP price index also rose by 2.6% year-on-year, meeting expectations but marking a slower pace compared to the 3.2% increase in the previous quarter.

Despite these positive indicators, weak consumption continues to pose a challenge. These figures are expected to reinforce the Bank of Japan's (BOJ) argument for further policy normalization, although the bank has indicated that Japan's economy is anticipated to continue growing at a moderate pace, buoyed by robust wages and investment.