BOJ Rate Hike Prospects Unfazed by Japan's Sluggish Growth
Japan's economy showed a slower-than-expected growth of 1.1% in annualized terms for the second quarter, missing market forecasts of 2%. This decline was largely due to subdued household and business spending.
Despite this soft reading, long-term bond yields hit a three-decade high as investors remained focused on mounting inflationary risks that could prompt the Bank of Japan (BOJ) to raise interest rates next month.
Naoki Hattori, chief Japan economist at Mizuho Research Institute, stated that 'the economy is likely to continue recovering moderately,' but noted that persistent price pressures would keep the case for imminent interest rate hikes intact.
The BOJ is expected to raise rates as soon as September and may hike more aggressively thereafter to avoid being behind the curve on inflation. The benchmark 10-year Japanese government bond (JGB) yield rose to a 30-year high of 2.925%, with investors pricing in BOJ rate hikes sooner and faster than earlier expected.