By Leika Kihara
The latest data indicates that Japan's economy likely rebounded in the April-June period, showing signs of growth after a previous contraction. This positive trend can be attributed to a pick-up in factory output and consumption, according to a recent Multibagger poll. The improved economic performance is expected to support the central bank's case for further interest rate hikes.
However, analysts warn that risks such as the recent rally of the yen and signs of a slowdown in the U.S. economy could pose challenges for Japan's export-reliant economy in the near future.
Key findings from the poll include an annualised GDP expansion of 2.1% in April-June, following a 2.9% contraction in the previous quarter. Private consumption is also on the rise, with a 0.5% increase marking the first uptick in five quarters. This growth can be attributed to significant pay hikes offered by companies during spring wage negotiations, which are beginning to boost household income.
Looking ahead, while global demand and rising inflation may continue to impact growth, Japan's economy is expected to benefit from strong wage growth and increased auto output. Capital expenditure is projected to have increased by 0.9%, underscoring the Bank of Japan's belief that robust corporate spending will drive growth.
Despite some positive indicators, net external demand is likely to have a slight negative impact on GDP, shaving off 0.1 percentage point. The government is set to release the preliminary second-quarter GDP data on August 15, shedding more light on Japan's economic performance.
Consumption has been a weak point in the economy due to rising living costs, partially attributed to a weaker yen. However, the Bank of Japan remains optimistic, raising interest rates recently and hinting at the possibility of further hikes. The central bank believes that as wage hikes begin to take effect in the economy, consumption will rebound.
Overall, Japan's economic rebound in Q2 presents a mix of opportunities and risks. Investors and individuals should closely monitor developments in the global economy and pay attention to key economic indicators to make informed decisions about their finances.