(Bloomberg) -- Japan’s economy grew at a faster pace than initially estimated, indicating more strength in the recovery as the central bank parses data ahead of a policy decision later this month.
Japan’s gross domestic product grew at an annualized pace of 1.2% in the three months through September from the previous quarter, the Cabinet Office said Monday. The result beat a preliminary estimate of 0.9%, largely on better net exports, capital expenditure and inventory figures. Economists had forecast an upward revision to 1.0%.
The stronger growth data support the Bank of Japan’s view that the economy will continue to expand moderately. The decline in both net exports and capital expenditure shrank, while inventory growth was also revised up.
BOJ Governor Kazuo Ueda is expected to closely examine economic data including its Tankan survey on Dec. 13 before the central bank’s Dec. 19 policy decision. Ueda said in an recent interview with the Nikkei newspaper that the timing for a hike is “nearing,” fueling speculation that the bank may increase rates this month.
“Today’s report reconfirmed that the economy continued to recover moderately,” said Yuichi Kodama, economist at Meiji Yasuda Research Institute. “There is more than a 50% chance that the BOJ will raise interest rates again in December. However, since the yen has risen slightly recently, there is no need to rush and they may opt to wait until January.”
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“Putting it all together, we think the Bank of Japan will take the GDP report as more evidence that the economy is becoming sturdy enough to withstand a further reduction in stimulus.”
— Taro Kimura, economist
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Monday’s data confirmed that the economy grew for a second consecutive quarter. Consumer spending was relatively solid for a second-straight quarter despite a major typhoon in August, in a sign that underlying strength may be returning to the economy.
Still, some economists are skeptical about how sustainable the growth is given it was partly lifted by one-off tax cuts ordered by former Prime Minister Fumio Kishida. Separate consumption data including household spending continues to indicate consumers are far from bullish as they manage their purse strings with ongoing inflation in mind.
Inflation has remained at or above the central bank’s target for more than 30 months.
So far Japan’s economy is expected to expand in the fourth quarter at an annualized rate of 1.5%, according to a Bloomberg survey last month.
Prime Minister Shigeru Ishiba’s administration remains cautious about the state of the economy. The government has yet to declare an exit from deflation and continues to opt for ample fiscal support to tame the impact of inflation on people, as seen in the latest economic stimulus package, which was marginally larger than last year’s.
The Japanese economy also remains vulnerable to uncertainties in its key trading partners. In the US, President-elect Donald Trump has pledged to impose higher tariffs on all imports. In China, authorities are trying to boost growth with aggressive stimulus efforts amid a decline in the real estate sector.
Trump’s return to the White House is also likely to trigger a period of increased US-China tensions, potentially causing disruptions across various global supply chains, and dampening demand across the world.
For now the revised GDP figures fit in with recent economic data including inflation numbers that are largely developing in line with the BOJ’s projections.
“I think the BOJ will continue to view things as developing on track,” Meiji Yasuda’s Kodama said.
(Updates with economist comments, more background.)
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