Japan Revises Up Q2 GDP Growth to 1.4%, Boosting BOJ Rate-Hike Outlook

Japan’s second-quarter economic growth was revised higher from the initial estimate, lending support to expectations that the Bank of Japan will raise its benchmark interest rate next week.

Bloomberg reported on September 7 that Japan’s Cabinet Office said second-quarter gross domestic product expanded at an annualized 1.4% from the previous quarter. That was 0.3 percentage point above the preliminary reading of 1.1%, but below the market forecast of 1.8%.

The upward revision reflected improved business investment data. Second-quarter capital spending was revised to a 0.9% decline from the previous quarter, narrower than the initially reported 1.2% drop. Japanese corporate profits also hit a record high last quarter, as global demand for artificial intelligence helped support the economy despite higher energy costs caused by conflict in the Middle East.

The figures support the view that Japan’s economy remains broadly in line with the BOJ’s existing outlook. As a result, markets are increasingly betting that the BOJ will raise rates at its monetary policy meeting on September 18. Swap markets are also strongly pricing in the chance of a rate increase this month.

Domestic demand, however, remained weak. Private consumption, which accounts for roughly half of GDP, was flat from the previous quarter. Household spending in Japan fell for an eighth straight month through July as inflation continued to weigh on consumers.

Government spending, by contrast, rose an annualized 6.9%, the biggest increase since the second quarter of 2024. Nominal GDP also rose 1.3%, aided by higher prices and other factors. After U.S. Treasury Secretary Scott Bessent recently said Japan’s deflationary era had ended and that reflation policies should be wound down, the revised growth figure is drawing attention for whether it will bolster the BOJ’s case for further tightening.