Japan's Q2 GDP Growth Revised Up to 1.4% on Stronger Capex

Japan's economy expanded at a faster pace than initially reported in the April-June quarter, according to revised official data released on Tuesday. The Cabinet Office now puts annualised growth at 1.4%, up from the preliminary estimate of 1.1%, though slightly below the 1.6% median forecast of economists.

On a non-annualised basis, gross domestic product rose 0.4% quarter-on-quarter, matching expectations and improving on the earlier 0.3% reading. The upward revision was driven by capital expenditure, which fell 0.9% in the quarter—less steep than the 1.2% drop initially estimated and close to the 0.8% decline forecast by analysts. Private consumption, which accounts for over half of the economy, remained flat, unchanged from the first estimate.

The revision follows separate data showing Japanese firms increased spending on plant and equipment by 1.6% in the second quarter from a year earlier. Additional figures released the same day revealed that inflation-adjusted real wages rose 2.4% in July from a year ago—the largest gain since May 2021 and the seventh consecutive monthly increase.

Attention now turns to the Bank of Japan's policy meeting next week. Markets widely expect a rate hike, with swap rates indicating a 98% probability of a 25-basis-point increase to 1.25%, according to money market broker Tokyo Tanshi. Traders have also fully priced in another hike to 1.5% by January. The central bank raised its policy rate to 1% in June, a 31-year high, but faces continued pressure to tighten further due to price pressures stemming from the U.S.-Iran conflict and the yen's weakness. Investors are closely watching how these factors might affect Japan's economic outlook.