BOJ on Brink as Japan Economy Beats Estimates

Japan's economy grew 1.4% on an annualised basis in the second quarter of 2026, beating initial estimates of 1.1%. According to Reuters, Japanese Cabinet Office data revealed that gross domestic product (GDP) expanded by 0.4% on a quarter-on-quarter basis without annualisation.

Kento Minami, senior economist at Daiwa Securities, noted the resilience of Japan's economy amidst pressure from the Middle East conflict.

Capital spending remains under pressure, falling 0.9% in the second quarter, while private consumption was unchanged. External demand contributed 0.5 percentage points to GDP growth, and domestic demand reduced it by 0.1 percentage point.

Markets are anticipating a Bank of Japan (BOJ) rate hike next week, with investors assessing the impact of previous rate hikes on the economy. A 98% probability suggests that the BOJ will raise interest rates by 25 basis points to 1.25%, while markets fully price in the next rate hike to 1.5% at the January meeting.