Japan’s economy grew at a surprisingly strong annualized rate of 3.1% in the second quarter, bouncing back from an earlier decline. This recovery was driven by a notable increase in consumer spending and bolsters the argument for a potential interest rate hike in the near future.
The Bank of Japan (BOJ) expects that sustained economic growth will help inflation consistently reach its 2% target, providing justification for further interest rate increases after the BOJ raised rates last month in its efforts to unwind years of large-scale monetary
According to government data, GDP growth exceeded the median market forecast of 2.1%, following a revised 2.3% contraction in the first quarter. This translates to a quarterly increase of 0.8%, surpassing the 0.5% growth economists had anticipated in a Reuters pol
“The overall results are positive, with clear signs of improvement in private consumption, supported by real wage growth,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. “This aligns with the BOJ’s outlook and indicates the likelihood of further rate hikes, though the central bank will tread carefully, given the last increase caused a sharp rise in the yen.
Private consumption, which contributes more than half of Japan’s economic output, increased by 1.0%, surpassing expectations of a 0.5% rise. This marked the first gain in five quarters, following a year of economic struggles as households faced rising living costs, partly due to higher import prices linked to a weaker yen.
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