BOJ Rate Hike Expected as Japan's Economy Surprises with Strong Q2 Growth

The Japanese economy expanded at a faster pace than initially reported in Q2, according to revised data released by the Cabinet Office. The upward revision was driven by less weakness in business spending than first estimated.

The economy grew at an annualized rate of 1.4% in the second quarter, up from the preliminary reading of 1.1%. On a non-annualized basis, gross domestic product rose 0.4%, matching the median forecast and exceeding the initial 0.3% increase.

Capital expenditure fell 0.9% in the second quarter, an improvement from the initial estimate but slightly worse than the 0.8% decline economists had predicted.

The Bank of Japan raised its policy rate to a 31-year high of 1% in June and faces pressure to push borrowing costs higher amid price pressures from the Middle East war and the yen's downward trend. Swap rates indicate a 98% chance of a 25 basis point rate hike to 1.25% at the September meeting.