Japan's second-quarter GDP growth rate, adjusted for seasonality, has been revised down to 0.7%, below the market expectation of 0.8%. The annualized quarterly rate was also revised down to 2.9%, falling short of the expected 3.2%. Meanwhile, iron ore prices have dropped to a 22-month low, falling below $90 per ton. Despite iron ore prices declining by more than one-third this year, steel demand typically rebounds after the summer, which could provide a respite for producers.
Last week's non-farm payroll data released by the United States sparked concerns over the health of the U.S. economy, pushing the yen higher and affecting exporters' profit outlooks. Following the Bank of Japan's rate hike in July and with market expectations that the Federal Reserve will lower borrowing costs to support the economy, the yen has continued to appreciate. Japanese equities entered a bear market at the beginning of August, with the Topix and Nikkei indices recording their largest declines since 1987, driven by rising interest rates and worries about the U.S. economy.
Although Japan's second-quarter economic data has been revised down, this has not altered market expectations for future rate hikes by the Bank of Japan. The Cabinet Office stated that the annualized quarterly rate of actual GDP for the second quarter was revised from an initial 3.1% to 2.9%, but this did not change market expectations of potential rate hikes by the Bank of Japan. The Bank of Japan is expected to keep the benchmark interest rate unchanged at its meeting later this month, although many observers believe rate adjustments may occur early next year.
According to analyst Shoji Hirakawa, global investors may be avoiding risks due to concerns over the U.S. economy and potential rate cuts. Takeshi Minami, Chief Economist at Norinchukin Research Institute, stated that although the revised data is within the margin of error, the Bank of Japan may continue to raise rates in the future.
Focus remains on consumer demand, as Japanese households face ongoing inflationary pressures. Despite a rise in real wages, consumer spending remains below pre-pandemic levels. Bloomberg economist Taro Kimura expects that with rising inflation and wages, the Bank of Japan is likely to raise rates again in October.
Furthermore, Japan's economy is expected to continue expanding this quarter, with an annual growth rate of 1.7%, a rate higher than the Bank of Japan's perceived potential growth limit. The Bank of Japan will conclude its policy meeting on September 20, where discussions about rate hikes in October or December may take place.
