Japan’s economy grew faster than expected in the July-September quarter, fueling expectations that the Bank of Japan (BOJ) could soon raise interest rates.
The revised data, released on December 9, showed real GDP expanding by 1.2% on an annualized basis, up from an initial estimate of 0.9%. This revised growth figure has reinforced the view that the Japanese economy is on a solid recovery path, which may prompt the BOJ to consider tightening monetary policy in the near future.
The 1.2% annualized growth for the July-September period was driven by upward revisions in key areas, including capital investment and exports. Capital expenditure fell by just 0.1% from the previous quarter, a smaller decline than the initially reported 0.2% drop. Exports also contributed positively, with the revision to external demand showing a smaller drag on growth compared to earlier estimates.
Private consumption, however, showed some signs of weakness, rising by 0.7% from the previous quarter, below the initial estimate of 0.9%. Despite this, the data indicates that Japan’s economy continues to show resilience, with a second consecutive quarter of increased consumer spending. The overall economic growth for the quarter, which saw a 0.3% expansion from the prior quarter, provides a mixed but largely positive outlook for the future.
These stronger-than-expected results have fueled speculation that the BOJ might raise interest rates soon. Governor Kazuo Ueda has previously indicated that the central bank is prepared to tighten policy if the economy continues to improve in line with its projections. Some analysts are even predicting a rate hike as early as the BOJ’s next policy meeting in December.
However, there are still uncertainties on the horizon. The downward revision in consumption highlights the fragility of the recovery, and there are concerns about external factors that could weigh on Japan’s economic outlook. Sluggish growth in key overseas markets, particularly in China, along with potential trade tensions under the incoming US administration, may pose challenges for Japan’s exports.
The BOJ is expected to closely monitor these developments when making its decision on interest rates. While some analysts see the current data as supporting a potential rate hike, others caution that the softness in consumption may cause the central bank to adopt a more cautious approach, possibly delaying a rate increase until the beginning of 2024.
The Wall Street Journal and Reuters contributed to this report.
