Japan revises Q3 GDP upwards, maintains rate hike expectations

Japan’s economy grew faster than initially reported for the July-September period thanks to upward revisions to capital investment and exports, keeping alive market expectations for an interest rate hike to short term by the central bank.

But a downward revision in consumption highlights the fragile nature of the economic recovery and leaves some uncertainty over when the central bank could raise interest rates again, with an increase in December not being the case either. more guaranteed, believe some analysts.

The data will be among the factors the Bank of Japan (BOJ) will scrutinize at its next policy meeting on Dec. 18-19, when some analysts expect short-term interest rates to rise from zero, 25% current.

“This supports the case for a rate hike in December, although weak consumption is a concern,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Gross domestic product (GDP) grew at an annualized 1.2% in the three months to September, revised Cabinet Office data showed on Monday, higher than economists’ median forecast and estimate initial 0.9% growth.

The revised figures translate to a quarterly expansion of 0.3% in price-adjusted terms, compared to growth of 0.2% according to preliminary data released on November 15.

The increase was partly explained by a smaller-than-expected drop in investment spending, which fell 0.1% in the third quarter, compared to a preliminary estimate of a 0.2% drop. That compares with economists’ estimate of a 0.1% rise.

External demand, i.e. exports minus imports, dragged down growth by 0.2 percentage points, a drop of less than 0.4 points in preliminary figures, according to revised data from the GDP.

Private consumption, which accounts for more than half of Japan’s economy, rose 0.7%, lower than the preliminary estimate of 0.9%.

“Even if this data does not significantly strengthen rate hike expectations, it will also not be a barrier to rate hikes,” said Uichiro Nozaki, an economist at Nomura Securities.

The upward revision still leaves third-quarter GDP growth much slower than the 2.2% annualized expansion recorded in the April-June period, which was largely a reaction to a contraction in the first quarter caused by production disruptions in certain automobile factories.

The BOJ phased out a sweeping decade-long stimulus program in March and raised short-term interest rates to 0.25% in July, saying Japan was making progress toward lastingly reaching its goal inflation of 2%.

Governor Kazuo Ueda said he was prepared to raise rates again if the BOJ was more confident that inflation would remain around 2%, supported by rising wages and robust domestic demand.

Nomura Securities’ Nozaki expects consumption to have slowed in the current quarter but will rebound in the January-March quarter based on the outlook for firm wage growth.

But others are less optimistic about Japan’s economy, with uncertainties abroad, such as U.S. President-elect Donald Trump’s threats of higher tariffs, clouding the outlook.

“While improving real wages will support consumption, the recovery in external demand will be hampered by stagnant growth overseas,” said Masato Koike, senior economist at Sompo Institute Plus.

“The Japanese economy will continue its recovery, but at a modest pace,” he added.

Many market participants expect the BoJ to raise rates again by the end of March of the current fiscal year, although they are divided on whether this will come in December or early of next year.

The BOJ remains cautious about the timing of the next rate hike, with December far from over given weak consumption, its governor’s cautious decision-making style and policy anxiety American economy in the context of a second Trump presidency, according to sources according to Reuters.