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

Japan economic growth: Japan's economy rebounded strongly in the second quarter of 2024, expanding at an annualised rate of 3.1 per cent, outperforming expectations and bolstering the case for additional interest rate hikes by the 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 the first quarter.The latest data, released by the government on Thursday, surpassed the median market forecast of a 2.1 per cent gain and also exceeded economists' expectations of a 0.5 per cent quarterly rise, showing a solid 0.8 per cent increase. The data suggest a recovery from earlier economic sluggishness, supported by real wage growth and a resurgence in consumer spending.Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, described the results as "positive overall," noting the pick-up in private consumption, which rose 1.0 per cent in the second quarter, well above the forecasted 0.5 per cent increase and marking the 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.The BOJ, which raised interest rates last month, views this economic rebound as validation of its monetary policy. The central bank had previously forecast that a solid economic recovery would help achieve its 2 per cent inflation target and justify further rate hikes. Despite the positive data, the BOJ remains cautious due to the potential impact of previous rate hikes on the yen's value.The economy's recovery is also supported by a resurgence in tourism and strong retail sales. The Japanese government projects tourist spending to reach 8 trillion yen ($54.74 billion) this year, highlighting tourism as a vital growth driver amidst an ageing population.However, Prime Minister Fumio Kishida’s impending resignation and potential political instability may influence the BOJ's decisions on future rate hikes. Kengo Tanahashi of Nomura Securities speculated that while another rate hike could occur in October or December, the likelihood of an October hike has diminished given the current political uncertainty.Economy Minister Yoshitaka Shindo remains optimistic about gradual economic recovery, citing strong spring wage talks and planned increases in minimum income. Nonetheless, Shindo warned of potential risks from global economic downturns and market volatility, as concerns about a possible US recession have recently unsettled global financial markets.The Nikkei 225 index rose 1.01 per cent in morning trading, buoyed by gains on Wall Street, while the Japanese yen remained steady at around 147.38 to the dollar. As Japan continues to navigate its economic challenges, the strong consumption data provides a compelling case for the BOJ to consider further tightening its monetary policy later this year.(With Reuters inputs)

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

The latest data, released by the government on Thursday, surpassed the median market forecast of a 2.1 per cent gain.

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