Japan’s economy expanded at a much faster-than-expected pace during the second quarter of 2024, recovering from a decline at the beginning of the year on greater consumption, which supported the possibility of the central bank hiking interest rates again soon.
Japan’s gross domestic product (GDP) rose 3.1 percent year-on-year, much higher than forecasts of a 2.1 percent expansion in Q2 of 2024. Last quarter’s expansion follows the upward revision of the Q1 GDP to 2.3 percent, government data showed on Thursday.
The Bank of Japan had forecast that a solid economic recovery would help inflation reach its 2 percent target and justify raising interest rates again after it hiked them last month.
Rising private consumption
Japan’s growing economy, rising private consumption and real wage growth support the central bank’s view that the economy needs more rate hikes. However, the BOJ remains cautious as the last rate increase had caused a sharp spike in the yen.
Japan’s private consumption, which accounts for over half of the economic output, rose 1 percent in Q2, compared with the forecast for a 0.5 percent increase. Moreover, it marked the first gain in five quarters.
Read: U.S. inflation slows to 2.9 percent, lowest in over 3 years
Tourism bolsters growth
An influx of tourism has also helped boost retail sales in Japan. Spending by tourists is expected to reach 8 trillion yen ($54.74 billion) this year, according to the government. Japan sees tourism as an essential pillar to the growth of the economy, which has long struggled with an ageing population.
Capital spending, a key driver of private demand growth, rose 0.9 percent in Q2, matching market forecasts. However, business investment might face some pressure in the months ahead as exporters face global demand pressure. Despite the economic expansion, japan’s external demand dipped by 0.1 points, the government data added.
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