Japan's Economy Surpasses Forecasts as BOJ Rate Hike Looms

Japan's economy grew faster than initially estimated in the second quarter, driven by business spending that was less weak than initially thought. The country's GDP expanded at an annualized rate of 1.4%, according to revised data released by the Cabinet Office on Tuesday. This is higher than the initial estimate of 1.1% and above the median forecast of 1.6%. Without annualization, GDP growth was 0.4%, matching the median forecast.

The upward revision reflects capital spending data that showed Japanese firms increased their spending on plant and equipment by 1.6% in the second quarter from a year earlier. This is a slight improvement over the initial estimate of a 1.2% drop. Private consumption, which accounts for more than half of Japan's economy, was flat.

The BOJ raised its policy rate to 1% in June, but investors are keen to assess the impact of the Middle East conflict and the BOJ's past rate hikes on Japan's economy. Markets widely see a Bank of Japan rate hike in September as a done deal, with a 98% chance for the BOJ to raise its policy rate by 25 basis points to 1.25% at its September meeting.