TOKYO, Sept 9 (Askume) – Japan’s second-quarter economic growth slowed slightly than initially reported, as lower business and household spending offset a fluctuating consumption in the second half and pointed to the central bank’s plans to raise interest rates.
The Bank of Japan is eager to see a sustained improvement in domestic demand as it considers exiting a decade-long monetary stimulus program and raising interest rates further in the coming months.
Revised data from the Cabinet Office on Monday showed the country’s gross domestic product grew 2.9% in the April-June quarter from a year earlier, while the median growth forecast among economists and preliminary estimates was 3.2%.
Revised data for the world’s fourth-largest economy showed price-adjusted growth of 0.7% in the quarter, compared with a 0.8% increase in the previous month.
“Despite an eventual recovery between April and June, the overall economy remains stagnant in the second half of 2023,” said Kengo Tanahashi, economist at Nomura Securities.
The capital expenditure component of GDP, a barometer of the strength of private demand drivers, rose 0.8% in the second quarter, higher than an initial estimate of a 0.9% rise. Economists had forecast growth of 1.0%.
Private consumption, which accounts for more than half of Japan’s economy, rose 0.9%, compared with a preliminary estimate of 1.0%.
Analysts expect Japan’s economy to continue its gradual recovery driven by positive trends in wages and personal and business spending, but risks remain from external factors such as a possible slowdown in the US and China.
Tanahashi of Nomura Securities cited weaker-than-expected household spending data for July released last week and said the economy may show signs of slowing this quarter.
“July household expenditure data was disappointing, and the (real) wage growth in June and July was due to summer bonuses rather than basic pay increases,” he said.
“The pace of private consumption in the July-September period is likely to be weaker than expected.”
The growth of external demand (i.e. imports minus exports) slowed to 0.1%, which was the same as the initial value. On the other hand, domestic demand contributed 0.8%.
Bank of Japan Policy Challenges
Although revised second-quarter GDP data is unlikely to have a major impact on the Bank of Japan’s decision-making, economists said recent spending data could weigh on the central bank’s plans to raise interest rates.
In July, the Bank of Japan raised its key interest rate to 0.25% from 0-0.1%, and the market is looking for clues about the timing of the next move.
None of the economists polled by Askume last month predicted a rate hike at the next policy meeting on Sept. 19-20, while most expected a rate hike by the end of the year.
Nomura’s Tanahashi said the Bank of Japan is likely to press ahead with normalizing monetary policy in the absence of any market turmoil, noting that it will continue to raise interest rates in July despite weak consumption.
Most other economists also expect the central bank to continue raising interest rates barring major growth and inflation crises.
“Although inflation has been easing since the beginning of the year, we expect this trend to reverse due to strong wage growth and robust economic activity,” said Benjamin Chartier, economist at JPMorgan Securities.
“We expect the Bank of Japan to raise interest rates in December.”
