Key facts
- Japan's Q2 GDP growth was revised upward to an annualized 1.4%.
- Capital expenditures decreased by 0.9% in Q2, a less severe drop than initially estimated.
- Private consumption remained flat, while external demand contributed positively to GDP.
- Inflation-adjusted real wages increased by 2.4% in July, the largest gain since May 2021.
- Markets anticipate a 98% probability of a 25 basis point rate hike by the Bank of Japan in September.
Japan's economy grew faster than initially estimated in the second quarter, with annualized GDP expanding 1.4%, revised up from 1.1%. This upward revision was primarily supported by business spending, as capital expenditures fell by a revised 0.9%, a less severe decline than the initial estimate of 1.2%. Private consumption, which constitutes over half of the economy, remained flat, consistent with preliminary data. External demand contributed positively to GDP growth. In addition to the GDP figures, Japan's inflation-adjusted real wages rose 2.4% in July year-on-year, marking the largest increase since May 2021 and the seventh consecutive monthly gain. Markets widely anticipate the Bank of Japan will raise its policy rate by 25 basis points to 1.25% at its September meeting, with swap rates indicating a 98% probability. Traders have also fully priced in another rate hike to 1.5% by January. The central bank faces pressure to continue raising borrowing costs amid persistent price pressures and the yen's downward trend.