Japan’s real GDP growth accelerates above expectations in Q2, BoJ unlikely to curb monetary policy soon

In the second quarter, Japan’s economic growth accelerated above expectations. The real GDP growth quickened to 4 percent year-on-year, as compared with consensus expectations of 2.5 percent. Growth was mainly driven by private investments and private consumption, which contributed 0.4 percentage points and 0.5 percentage points, respectively to the overall economic growth.

Public spending also contributed positively to the headline figure. The rise in public spending was driven by fiscal stimulus measures implemented at the end of last year. Meanwhile, net exports negatively contributed 0.3 percentage point from the economic growth.

Yet, above-potential economic growth is unsuccessful to stimulate inflation, which continues to be stubbornly low. Annual core inflation remained at 0.4 percent year-on-year in June with inflation of services dropping into negative territory, first time since 2013.

Therefore, above-potential economic growth is unlikely to prompt the Bank of Japan to curb its ultra-loose monetary policy anytime soon, unless higher GDP growth would begin putting upward pressure on wage and inflation growth. But the central bank would be under increased pressure to alter its somewhat dovish assessment of Japan’s economy stated as “expanding moderately” to a more hawkish one, noted Nordea Bank in a research report.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was slightly bullish at 59.0635, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 53.5266. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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