Japan's economy surges 3.1% in Q2, bolstering case for more rate hikes

Japan ecomic growth: Japan's ecomy rebounded strongly in second quarter of 2024, expanding at an annualised rate of 3.1 per cent, outperforming expectations and bolstering case for ditional interest rate hikes by Bank of Japan (BOJ). This robust growth, driven by a surge in private consumption, contrasts sharply with a revised 2.3 per cent contraction in first quarter.

latest data, released by government on Thursday, surpassed median market forecast of a 2.1 per cent gain and also exceeded ecomists' expectations of a 0.5 per cent quarterly rise, showing a solid 0.8 per cent increase. data suggest a recovery from earlier ecomic sluggishness, supported by real w growth and a resurgence in consumer spending.

Kazutaka Maeda, an ecomist at Meiji Yasuda Research Institute, described results as "positive overall," ting pick-up in private consumption, which rose 1.0 per cent in second quarter, well above forecasted 0.5 per cent increase and marking first gain in five quarters. This rise reflects a recovery in consumer confidence despite ongoing challenges such as rising living costs and a weak yen.

BOJ, which raised interest rates last month, views this ecomic rebound as validation of its monetary policy. central bank h previously forecast that a solid ecomic recovery would help achieve its 2 per cent inflation target and justify furr rate hikes. Despite positive data, BOJ remains cautious due to potential impact of previous rate hikes on yen's value.

ecomy's recovery is also supported by a resurgence in tourism and strong retail sales. Japanese government projects tourist spending to reach 8 trillion yen ($54.74 billion) this year, highlighting tourism as a vital growth driver amidst an ing population.

However, Prime Minister Fumio Kishida’s impending resignation and potential political instability may influence BOJ's decisions on future rate hikes. Kengo Tanahashi of mura Securities speculated that while ar rate hike could occur in October or December, likelihood of an October hike has diminished given current political uncertainty.

Ecomy Minister Yoshitaka Shindo remains optimistic about grual ecomic recovery, citing strong spring w talks and planned increases in minimum income. neless, Shindo warned of potential risks from global ecomic downturns and market volatility, as concerns about a possible US recession have recently unsettled global financial markets.

Nikkei 225 index rose 1.01 per cent in morning tring, buoyed by gains on Wall Street, while Japanese yen remained stey at around 147.38 to dollar. As Japan continues to navigate its ecomic challenges, strong consumption data provides a compelling case for BOJ to consider furr tightening its monetary policy later this year.

(With Reuters inputs)