Japan’s economy bounces back, supporting case for more rate hikes

Japan’s economy expanded by a much faster-than-expected annualized 3.1% in the second quarter, rebounding from a slump at the start of the year thanks to a strong rise in consumption and backing the case for another near-term interest rate hike.

Japan’s economy expanded by a much faster-than-expected annualized 3.1% in the second quarter, rebounding from a slump at the start of the year thanks to a strong rise in consumption and backing the case for another near-term interest rate hike. The Bank of Japan had forecast that a solid economic recovery will help inflation sustainably hit its 2% target, and justify raising interest rates further after it hiked them last month in its continued quest to exit years of massive monetary stimulus. The increase in gross domestic product (GDP) compared with a median market forecast for a 2.1% gain, and followed an upwardly revised 2.3% contraction in the first quarter, government data showed on Thursday. The reading translates into a quarterly rise of 0.8%, beating a 0.5% increase expected by economists in the Reuters’ poll. “The results are simply positive overall, with signs for a pick-up in private consumption backed by real wage growth,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. “It supports the BOJ’s view and bodes well for further rate hikes, although the central bank would remain cautious as the last rate increase had caused a sharp spike in the yen.”