BOJ Rate Hike Looms as Revised GDP Data Boosts Japan's Interest Rates

Japan's economic growth in April-June was revised upward to 1.4% annualized, giving the Bank of Japan (BOJ) more room to consider raising interest rates.

The Cabinet Office reported that the economy grew 0.4% quarter-on-quarter in the second quarter, exceeding the initial estimate of 0.3%. The revision was largely driven by a smaller-than-expected decline in business spending, with capital expenditure falling 0.9%, not 1.2%. Additionally, plant-and-equipment spending increased by 1.6% year-over-year.

However, private consumption remained flat, and net exports made up the difference. Despite this mixed picture, July's jump in inflation-adjusted real wages to 2.4% has provided the BOJ with an argument that demand can absorb higher borrowing costs following June's rate hike to 1%. With swap markets pricing a nearly certain 98% chance of a September rate hike to 1.25%, investors are bracing for a potential shift in global liquidity.