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Japan's Economic Surge Spurs Speculation of Bank of Japan Rate Hike

AInvestSunday, Dec 8, 2024 10:00 pm ET
1min read

Japan's economic performance in the third quarter of this year surpassed initial projections, suggesting potential monetary policy shifts by the central bank. The revised data from Japan's Cabinet Office indicates an annualized GDP growth of 1.2%, up from the preliminary estimate of 0.9% announced in mid-November. On a quarter-on-quarter basis, the economy expanded by 0.3%. The improved GDP figures have rekindled speculation about an imminent interest rate hike by the Bank of Japan, possibly as soon as later this month.

The upward revision in GDP numbers is primarily attributed to stronger-than-expected capital investment and export activities. Specifically, capital expenditure, often seen as a barometer of private sector demand, showed a slight decrease of 0.1%, which is smaller than the initially reported 0.2% decline, underscoring resilient private investment. Meanwhile, private consumption, which constitutes over half of Japan's economy, saw a growth of 0.7%, slightly down from the initial estimate of 0.9%.

Additionally, while external demand contributed negatively to the GDP, its impact was less severe than previously thought, with a negative contribution of 0.2 percentage points compared to the earlier estimate of 0.4 points. Domestic demand, on the other hand, positively contributed 0.5 percentage points to economic growth, highlighting a more balanced internal economic environment.

The robust growth data has also influenced currency markets. The anticipation of a rate hike has strengthened the Japanese yen, with the exchange rate climbing from approximately 150.10 to 149.70 against the dollar in early Tokyo trading. This development comes as Bank of Japan Governor Kazuo Ueda hints at further rate increases, contingent on continued economic improvements, suggesting a new phase of monetary policy adjustments following similar actions in March and July.

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