Japan’s economy likely rebounded in Q2 on consumption pick-up: Reuters poll By Reuters

By Leika Kihara

TOKYO (Reuters) – Japan’s economy likely rebounded in the April-June period after shrinking in the previous quarter thanks to a pick-up in factory output and consumption, a Reuters poll showed, helping the central bank make the case for further interest rate hikes.

But the yen’s recent rally and signs of slowdown in the U.S. economy may emerge as fresh risks to the export-reliant economy, some analysts say.

Japan’s real gross domestic product (GDP) is expected to have expanded an annualised 2.1% in April-June, according to a median forecast of economists polled by Reuters, rebounding from a 2.9% contraction in the previous quarter.

Private consumption likely rose 0.5%, marking the first increase in five quarters, as bumper pay hikes offered by companies in spring wage negotiations begin to boost household income, the poll showed.

“While slowing global demand and rising inflation will continue to drag on growth, Japan’s economy will get a lift form strong wage growth and a pick-up in auto output,” said Saisuke Sakai, an economist at Mizuho Research & Technologies.

Capital expenditure is expected to have increased 0.9% after a 0.4% drop in January-March, the poll showed, underscoring the Bank of Japan’s view that robust corporate spending will underpin growth.

Net external demand likely shaved a 0.1 percentage point off GDP, the poll showed, less than a 0.4-point negative contribution in the January-March period.

The government will release the preliminary second-quarter GDP data at 8:50 a.m. Aug. 15 (2350GMT on Aug. 14).

Japan made a rare, unscheduled downgrade to historical GDP that showed the economy contracted more than expected in the first quarter, casting doubt on the strength of its recovery.

Consumption has been a soft spot in the economy as rising living costs, blamed in part on a weak yen, hit households before they begin to feel the benefits of higher pay.

The Bank of Japan raised interest rates on Wednesday and signalled the chance for further hikes, arguing that consumption will rebound as the wage hikes begin to make their way into the economy.