In an unscheduled revision to gross domestic product (GDP) data on Monday, Japan’s government revealed that the economy shrank more than initially reported in the first quarter. Japan’s real GDP contracted 2.9 percent annually in January-March, down from an earlier estimate of a 1.8 percent contraction, the most recent data showed.
The government also revised Japan’s real GDP for the October-December period down to 0.1 percent growth annually versus the previous 0.4 percent increase. Meanwhile, the government revised the country’s GDP for the July-September period down to a 4.0 percent annual decline from the previous 3.7 percent drop.
Rate hike speculations rise
Japan’s central bank ended negative interest rates in March with an aim to achieve a 2 percent inflation target. Governor Kazuo Ueda has signaled the possibility of additional rate hikes if underlying inflation heads toward 2 percent, as it projects. The GDP revisions, in addition to the recent weak consumption and output data, will likely impact the Bank of Japan’s quarterly growth and price forecasts due at its July 30-31 policy meeting.
Read: Germany’s unemployment rate rises to 6 percent in June
Business mood mixed
In addition to the GDP revision, Bank of Japan data showed on Monday that the business sentiment index for major Japanese manufacturers rose two points to 13 in June, marking the first improvement in two quarters. However, the index among non-manufacturers, including service providers, declined to 33 in June from 34, the first fall in 16 quarters after strong improvement mainly driven by a revival of inbound tourism.
“Business sentiment is good overall,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc. Despite the positive business sentiment, corporate inflation expectations rose slightly, which will likely raise market expectations for an interest rate hike soon. The data revealed that companies project inflation to hit 2.3 percent three years from now and 2.2 percent five years later.
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