Japan’s GDP of Q2 Beats Expectations, Rising 0.8% Compared to Q1

The performance was way better than the predicted 0.5%.  

Key takeaways:  

➡ The Japanese yen (JPY/USD) strengthened marginally against the US dollar, with the exchange rate at 147.18.  

➡ The performance signified a comeback from 0.6%.  

➡ The BOJ aims to move towards policy normalization for more flexibility in the future.    

Japan’s economic expansion in the second quarter of 2024 was stronger than expected, at a 0.8% rise from the previous quarter. This performance was also better than the Reuters poll forecast of 0.5% and signified a reversal from a 0.6% from the last quarter.  

Japan's GDP increased at an annual rate of 3.1%, exceeding the expected 2.1%. However, on a year-to-year basis, the country’s GDP shrank for the second quarter in a row. The positive GDP data had some impact on Japan’s financial markets; the Nikkei 225 rose by 0.16%, while the broader Topix index rose by 0.44%. Also, the Japanese yen (JPY/USD) strengthened marginally against the US dollar, with the exchange rate standing at 147.18.  

Regarding the GDP figures, Jun Saito, a Senior Research Fellow at the Japan Center for Economic Research, said on CNBC’s ‘Squawk Box Asia’ that this was ‘very positive.’ According to him, this would boost the BOJ’s confidence in increasing interest rates.  

However, Saito and other experts predict the Japanese economy will grow moderately for the remainder of 2024 due to the slip seen in the first quarter. The difference in interest rates between Japan and the US still poses risks for Japan's export value, especially when Japan raises rates while the US may lower them.  

“Taking that into account, I think the growth perspective of Japanese economy is not that great, because of the negative influence coming from exports, while the domestic [growth] is not that strong,” he said.  

The Bank of Japan will monitor the market reaction to its gradual policy tightening as it moves towards policy normalization to allow more flexibility in the future.  

A month ago, the Bank of Japan increased interest rates and outlined the idea of tapering its large-scale bond-buying programme and winding down its huge monetary easing programme. Japan is the only major economy tightening its monetary policy by raising rates at the same time as most other leading central banks, including the UK’s BoE, are easing or thinking about doing so.