Key facts
- Japan's economy grew at an annualized 1.4% in the second quarter, exceeding the preliminary estimate of 1.1%.
- Capital expenditures decreased by 0.9% in Q2, a less severe drop than the initial estimate of 1.2%.
- Private consumption, a key component of the economy, was flat.
- Inflation-adjusted real wages in Japan increased by 2.4% in July, marking the largest gain since May 2021.
- Money markets are pricing in a 98% chance of a 25 basis point rate hike by the Bank of Japan at its September meeting.
Japan's economy demonstrated stronger-than-initially-reported growth in the second quarter, with revised data indicating an annualized expansion of 1.4%. This upward revision was primarily supported by capital expenditures, which showed a less significant decline than previously estimated.
Without annualization, GDP grew by 0.4%, aligning with forecasts and surpassing the preliminary reading. Businesses' capital expenditure fell by 0.9% in the quarter, an improvement from the initial estimate of a 1.2% drop. Private consumption, which constitutes over half of Japan's economy, remained flat, consistent with earlier data.
Further bolstering economic sentiment, Japan's inflation-adjusted real wages saw their largest increase since May 2021, rising 2.4% in July year-on-year. This marks the seventh consecutive month of gains.
Markets are closely watching the Bank of Japan's upcoming policy meeting, with swap rates indicating a 98% probability of a 25 basis point rate hike to 1.25% in September. Traders are also fully pricing in another hike to 1.5% by January. The central bank faces pressure to continue raising borrowing costs amid persistent price pressures and a weakening yen.