By Megumi Fujikawa
TOKYO--The Japanese economy grew more quickly than initially estimated in the July-September quarter, fueling expectations that the Bank of Japan will raise interest rates soon and lending further strength to the yen.
Real gross domestic product expanded 1.2% on an annualized basis in the quarter, compared with 0.9% growth in the preliminary estimates released in mid-November. The Japanese economy grew 0.3% from the previous quarter, revised government data showed on Monday.
Confirmation of solid growth provides fresh support to views that the central bank will lift its policy rate soon, potentially even later this month. BOJ Gov. Kazuo Ueda has said the bank will raise interest rates further if the economy improves in line with its projections.
Renewed hopes for an early rate increase sent the yen to near 149.70 against the dollar after the data release from around 150.10 in early Tokyo trading.
The stronger growth print reflects upward revisions to capital investment and exports.
Capital expenditure fell 0.1% from the previous quarter, compared with the initial estimate of a 0.2% decline. The upward revision was well anticipated because of the solid reading in the Ministry of Finance's recent corporate activity survey.
External demand, or exports minus imports, took 0.2 percentage point from growth, compared with minus 0.4 percentage point in the preliminary estimate.
Economists expect the Japanese economy to stay on a recovery path in the current quarter.
Mizuho Research & Technologies economist Saisuke Sakai expects the Japanese economy to continue expanding at around 1% on an annualized basis in the October-December quarter, he said in a research note before Monday's release.
"With high corporate profits transferring into wages and capital investment, the Japanese economy is expected to continue on a recovery track, driven by domestic demand," he said.
Monday's data showed that consumer spending rose 0.7% from the previous quarter. Although the figure was slightly lower than the 0.9% rise initially estimated, it confirmed a second straight quarter of increased private consumption.
However, going forward Japan's economy faces headwinds from a slowdown in overseas economies--including sluggishness in China--and from potentially higher trade tariffs under the next U.S. president, Donald Trump, that will likely affect exports from Japan.
SMBC Nikko Securities economists think the BOJ is more likely to hold off on tightening policy further until January.
"Although the Bank of Japan does not have to wait for full details of President-elect Trump's economic policies, it is reasonable to take some time to assess if there is little risk of [Japan's] monetary policy falling behind the curve," the economists said.
Domestic political considerations are another factor that could prompt the BOJ to take a wait-and-see approach, they added.
Lawmakers are set to discuss a budget to pay for economic stimulus which includes measures to help households with cost-of-living pressures. They will also consider the possibility of raising a tax-free income threshold, which is expected to reduce the government's tax revenue.
"An additional rate hike at the December meeting will likely pour cold water on the discussion of the supplementary budget and tax reform," the economists said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
12-08-24 2158ET
