The Japanese government released revised economic data for the third quarter (July-September) this Monday, showing an upward adjustment in economic growth fueled by better capital investment and export figures. The revised data indicates that Japan's GDP grew at an annualized rate of 1.2%, surpassing initial data and market expectations. This adjustment has heightened market expectations for a rate hike by the Bank of Japan in the upcoming December meeting. However, the downward revision of consumer data has led some analysts to worry about the fragility of Japan's economic recovery, casting uncertainty over the rate hike outlook.
Japan's Q3 Economic Growth Revised Upward
According to the latest data, Japan's third-quarter GDP annual growth rate has been revised to 1.2%, up from the initial data and market expectation of 0.9%. Adjusted for prices, the revised quarterly growth rate is 0.3%, slightly above the initial figure of 0.2%. This revision is mainly due to a smaller decline in capital expenditure, which fell by 0.1% in the third quarter, compared to the preliminary data showing a 0.2% decrease. Additionally, the contribution of external demand (exports minus imports) to economic growth was more significant than initially reported, with the revised data showing that external demand reduced growth by 0.2 percentage points, less than the preliminary estimate of 0.4 percentage points.
However, despite the favorable revision of the third-quarter GDP data, Japan's consumer data remains concerning. Private consumption, which accounts for more than half of Japan's economy, grew only by 0.7%, below the initial data of 0.9%. This weak consumption remains a major concern for the market regarding Japan's economic recovery prospects.
Debate Continues on Rate Hike Prospects
The Bank of Japan started gradually exiting a decade-long loose monetary policy in March and raised short-term interest rates to 0.25% in July. There is still debate in the market about whether the Bank of Japan will raise rates in December. BoJ Governor Kazuo Ueda stated that if the BoJ is confident that inflation will consistently hover around 2% supported by wage increases and strong domestic demand, the likelihood of a rate hike will rise.
With Japan increasing its economic growth forecasts, some analysts believe this supports a rate hike in December. Takeshi Minami, Chief Economist at Norinchukin Research Institute, noted that the data does indeed support a rate hike but also pointed out that weak consumption remains a potential risk factor. Nomura Securities analyst Uichiro Nozaki believes that although consumption might slow down in the fourth quarter, strong wage growth prospects could drive a rebound in consumption in the first quarter of next year.
External Risks Pose Pressure on Economic Outlook
Although Japan's economic data has improved, external risks remain a concern. Particularly, with the upcoming U.S. election, a potential victory for Trump could pose tariff threats that would exert pressure on the Japanese and global economies, overshadowing Japan's economic outlook.
In summary, while the revisions to third-quarter economic data bolster the possibility of a rate hike, factors such as weak consumption and external risks continue to introduce uncertainty to the Bank of Japan's policy decisions. The market remains watchful of the Bank of Japan's December rate hike expectations, but the continuation of the rate hike path remains to be seen.
