Japanese Economy Grows Below Expectations, Raising Hopes for Rate Hike

The Japanese economy grew at a slower pace than expected in the second quarter of this year. According to data from the Japanese Cabinet Office, real GDP increased by 0.3% compared to the previous quarter, while annualized growth rate was 1.1%. This is half of the market forecast of 2.2%, and analysts say the quality of growth was not very good.

The paradoxical situation saw a decline in imports supporting the growth rate, as exports increased by 0.5% while imports fell by 1.5%. Personal consumption, which accounts for about half of GDP, fell 0.02% during the period, and facility investment declined by 1.2%, marking the second consecutive quarter of decline.

However, it's not all doom and gloom for the Japanese economy. The increase in service exports related to R&D was a notable highlight, with overseas transactions such as basic and applied research, new product development, and patent rights and design rights contributing to growth.

The market is now focusing on the possibility of a rapid rate hike by the Bank of Japan due to inflationary pressure and the weak yen. The 10-year Treasury bond rate rose to its highest level in about 30 years, reaching 2.93%, while the two-year interest rate also increased to 1.685%.

Taro Saito, head of the economic research department at the Nikkei Basic Research Institute, expressed concerns about the outlook for the third quarter of this year, predicting that households' real purchasing power will decline as inflation accelerates and facility investment continues its moderate recovery trend.