Japan’s economic growth: Japan’s economy rebounded strongly in the second quarter of 2024, expanding at an annualized rate of 3.1%, beating expectations and reinforcing the case for further interest rate hikes by the Bank of Japan (BOJ). This solid growth, driven by a surge in private consumption, contrasts sharply with a revised contraction of 2.3% in the first quarter.
The latest data, released by the government on Thursday, beat the median market forecast for a 2.1 percent increase and also exceeded economists’ expectations for a 0.5 percent quarterly rise, showing a solid 0.8 percent increase. The data suggest a recovery from the previous economic sluggishness, supported by real wage growth and a resurgence in consumer spending.
Kazutaka Maeda, an economist at the Meiji Yasuda Research Institute, called the results “positive overall,” highlighting the recovery in private consumption, which rose 1.0% in the second quarter, well above the expected increase of 0.5% and marking the first gain in five quarters. This increase reflects a recovery in consumer confidence despite current challenges such as rising living costs and a weak yen.
The Bank of Japan, which raised interest rates last month, sees the economic rebound as a validation of its monetary policy. The central bank had previously forecast that a solid economic recovery would help it achieve its 2% inflation target and justify further rate hikes. Despite the positive data, the Bank of Japan remains cautious due to the potential impact of previous rate hikes on the value of the yen.
The economic recovery is also supported by a resurgence in tourism and strong retail sales. The Japanese government expects tourist spending to reach 8 trillion yen ($54.74 billion) this year, highlighting that tourism is a vital driver of growth in a context of an ageing population.
However, the impending resignation of Prime Minister Fumio Kishida and possible political instability may influence the BOJ’s decisions on future rate hikes. Kengo Tanahashi of Nomura Securities speculated that while another rate hike could happen in October or December, the likelihood of an October hike has diminished given the current political uncertainty.
Economic Minister Yoshitaka Shindo remains optimistic about a gradual economic recovery, citing strong spring wage negotiations and expected increases in the minimum income. However, Shindo warned of potential risks from global economic shocks and market volatility, as concerns about a possible U.S. recession have recently roiled global financial markets.
The Nikkei 225 index rose 1.01 percent in morning trading, boosted by gains on Wall Street, while the Japanese yen held steady around 147.38 per dollar. As Japan continues to navigate its economic challenges, the strong consumer data offer a compelling argument for the Bank of Japan to consider further tightening monetary policy later this year.
(With contributions from Reuters)
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