Japan revises Q2 GDP up to annualised 1.4% expansion

Japan's economy experienced a stronger-than-expected expansion in the April-June quarter, with the Cabinet Office revising the GDP growth upward to an annualized 1.4% increase, according to data released on Tuesday. This revision is attributed to businesses' capital expenditures, which were less weak than initially estimated. Economists had previously forecasted a 1.1% growth rate for the second quarter.

Private consumption remained flat, while external demand, or exports minus imports, contributed to a 0.5 percentage point growth in GDP. Domestic demand slightly decreased by 0.1 percentage point, which was better than the initial estimate of a 0.2% drag. The upward revision is primarily driven by an increase in capital spending, with Japanese firms raising their spending on plant and equipment by 1.6% in the second quarter compared to the previous year.

Additionally, inflation-adjusted real wages in Japan rose by 2.4% in July from the previous year, marking the largest increase since May 2021 and the seventh consecutive month of gains. The Bank of Japan (BOJ) raised its policy rate to a 31-year high of 1% in June, but the central bank continues to face pressure to increase borrowing costs further due to the U.S.-Iran war and the yen's downward trend.

According to money market broker Tokyo Tanshi, there is a 98% chance the BOJ will raise its policy rate by 25 basis points to 1.25% at its upcoming September meeting, with traders also pricing in another hike to 1.5% by the January meeting.