Japan upgrades Q2 GDP on slight capex improvement

Japan's economy showed a stronger-than-anticipated growth in the April-June quarter, with official figures indicating an annualized expansion of 1.4% for the second quarter. This revision surpassed initial estimates of 1.1% growth, bringing the median forecast from economists to 1.4% growth. The economy grew by 0.4% on an annual basis, matching the median forecast and exceeding the preliminary reading of 0.3% growth.

The improvement can be attributed to business spending, which was less weak than initially estimated. Private consumption remained flat, while external demand, represented by exports minus imports, added 0.5 percentage points to GDP growth. Domestic demand slightly contributed to growth, offsetting a 0.1 percentage point drag. This upward revision is primarily due to revised capital spending data that showed a 1.6% increase in spending on plant and equipment in the second quarter compared to a year earlier.

While the Middle East conflict remains a concern, the stronger-than-expected growth suggests the Bank of Japan can proceed with rate hikes. Markets widely expect a Bank of Japan rate increase in September, with traders fully pricing in another rate hike to 1.5% by the January meeting.