BOJ to Continue Interest Rate Hike Path Despite Weak GDP Growth

The Bank of Japan (BOJ) is expected to continue its interest rate hike path in September, despite recent weak GDP growth data. BOJ Deputy Governor Ryozo Himino downplayed the Q2 GDP growth, citing technical factors as the cause for the decline.

In a speech to business leaders, Himino emphasized that underlying inflation has been approaching 2% and financial conditions have been accommodative. He believes the bank should continue to raise the policy interest rate to adjust the degree of monetary accommodation in accordance with developments in economic activity, prices, and financial conditions.

July industrial production is expected to post its first drop in four months, down 0.6% on the month, after a solid 1.9% gain (revised up from +1.3%) in June. Retail sales are forecast to post a 2.5% rise on the year in July for a fifth straight gain, driven by hot weather and increased demand for air conditioners.

The BOJ's leadership is not concerned that further rate hikes would hurt growth, despite disappointing Q2 GDP data showing private consumption dipped 0.0% on quarter and business investment in equipment and software slumped 1.2%. Himino stated that the bank should pay greater attention to the upside risk to prices than in the past.