Japan’s Stronger Q2 Growth Keeps BOJ Tightening on Track

Japan Q2 GDP growth was stronger than initially estimated, reinforcing expectations that the Bank of Japan will continue raising interest rates.

Gross domestic product expanded at an annualised 1.4% in April-June from the previous quarter, revised up from an initial 1.1% estimate. Non-annualised quarterly growth was 0.4%, government data showed.

Capital expenditure fell 0.9%, a smaller decline than the previously estimated 1.2%, while private consumption was unchanged.

Separate figures showed inflation-adjusted wages rose 2.4% year on year in July, the strongest increase since May 2021.

Financial markets are pricing in a 98% probability that the BOJ will increase its policy rate by 25 basis points to 1.25% at its September meeting.

A further increase to 1.5% is fully priced by January, suggesting investors expect monetary tightening to continue as wages and economic activity remain supportive.