Japan's Q2 GDP Growth Revised Up on Improved Capital Spending

Japan's economy expanded at a faster clip in the April-June quarter than first reported, according to revised Cabinet Office data released on Tuesday. The upward revision was driven by capital expenditure, which, while still contracting, was less weak than the initial estimate suggested.

The economy grew at an annualised pace of 1.4% in the second quarter, up from the preliminary reading of 1.1%. On a non-annualised basis, GDP rose 0.4% quarter-on-quarter, also above the initial 0.3% estimate.

Capital expenditure fell 0.9% in the quarter, an improvement from the 1.2% drop initially reported. The data aligns with separate figures released last week showing Japanese firms increased spending on plant and equipment by 1.6% in the second quarter from a year earlier.

Private consumption, which accounts for more than half of the economy, was flat, matching the preliminary reading. External demand contributed 0.5 percentage point to growth, unchanged from the first estimate, while domestic demand shaved 0.1 percentage point off the headline figure.

Economists noted the resilience of the economy despite potential headwinds from the Middle East situation during the quarter. The data is being closely watched ahead of the Bank of Japan's (BOJ) policy meeting next week, where a rate hike is widely seen as a done deal.

Market pricing indicates a 98% probability of a 25-basis-point increase, which would take the policy rate to 1.25%, a level not seen in decades. Traders have also fully priced in another hike to 1.5% by January.

Supporting the case for tighter policy, separate data released on Tuesday showed Japan's inflation-adjusted real wages rose 2.4% in July from a year earlier, marking the seventh consecutive month of gains and the largest increase since May 2021. The BOJ raised its policy rate to 1% in June and faces continued pressure to normalise policy amid price pressures stemming from the Middle East conflict and a weaker yen.