Japan revised its second-quarter economic growth up to an annualized 1.4% after corporate spending turned out far stronger than first estimated, while the yen climbed to its highest level against the dollar in seven months.
Real gross domestic product grew 0.4% in the April-June quarter from the previous quarter, according to revised preliminary data released by the Cabinet Office on the 8th. That was 0.1 percentage point higher than the 0.3% expansion in the initial reading. On an annualized basis, growth came to 1.4%, up from the 1.1% first reported. The figure still fell short of the 1.8% average forecast in a Bloomberg survey of economists. Japan releases a first preliminary estimate after each quarter ends, then publishes a revised figure reflecting detailed data such as corporate statistics.
A sharp improvement in corporate capital spending was the main reason for the upgrade. Capital investment fell 0.9% from the previous quarter, a smaller decline than the 1.2% drop initially reported. Nominal government spending rose at an annualized 6.9%, the largest gain since the second quarter of 2024, as free school meals shifted part of household consumption to government outlays. Private consumption, which accounts for more than half of Japan's economy, was flat as high prices continued to weigh on households.
Kento Minami, senior economist at Daiwa Securities, said the growth was notable given the period involved. "The April-June period was a time when the situation in the Middle East could have acted as downward pressure on the economy, so recording this level of growth is worth noting," he said. "This is not a situation where we need to worry about the economy at all, and it means the Bank of Japan can continue to push ahead with rate hikes."
The solid GDP reading gave further momentum to expectations that the Bank of Japan will raise its policy rate at its September monetary policy meeting. Swap rates already treat a September hike as a done deal. Wage data released the same day showed Japan's real wages rose 2.4% in July from a year earlier, the seventh consecutive monthly increase and the largest gain since May 2021.
Yen Gains Traction, Hits Six-Month High
The yen strengthened to the 153 level as the odds of a September rate hike rose. The dollar-yen rate fell to as low as 153.3 yen as of the morning, the strongest for the yen and weakest for the dollar in about six months, since mid-February.
Japan's Nihon Keizai Shimbun said buying of the yen is dominant against major currencies as expectations persist that U.S. and Japanese authorities will correct the yen's weakness and that the Bank of Japan will accelerate rate increases. The yen broke through the psychological resistance level of 155 yen that had held despite two rounds of market intervention.
Yusuke Okada, senior researcher in the treasury and forex division at Mitsubishi UFJ Trust and Banking, said market momentum is shifting. "Not only hedge funds but also players trading from a medium- to long-term perspective are unwinding short-yen, long-dollar positions," he said.
Market participants increasingly expect U.S. and Japanese monetary authorities to conduct another joint intervention following the one in July, as U.S. Treasury Secretary Scott Bessent has repeatedly said he strongly supports the Japanese government taking decisive market and monetary policy steps.
A fading sense of crisis over the now-entrenched Middle East conflict also played a part. Analysts say the "buy dollars in emergencies" reflex has weakened as expectations grow that tensions in the region will ease from their most acute phase.
