Japan’s economy exceeded expectations in the second quarter of 2024, with GDP expanding due to various factors such as private consumption, business spending, residential investment, and public investments. Despite challenges from net exports and net private inventories, the overall growth was positive, according to UOB Group economist Alvin Liew.
Anticipating Continued Growth in 3Q
Looking ahead, experts anticipate that the growth momentum will carry into the third quarter, fueled by increased consumption, a rise in tourist numbers, and accelerated tech investments. However, there are still potential risks to consider. While the second quarter’s performance exceeded expectations, the first half of the year saw a contraction of -0.86% year-on-year. As a result, the GDP growth forecast for 2024 has been revised down to 0.2% (from 1.9% in 2023), with a projected rebound to 1.7% in 2025.
Furthermore, it is expected that the Bank of Japan (BOJ) will continue its rate tightening efforts, though the process may not be continuous and is likely to follow a limited normalization path. The BOJ is anticipated to maintain its policy rates at the upcoming September 2024 Monetary Policy Meeting, with a potential 25-basis point hike to 0.50% in the fourth quarter of 2024, which is expected to be the terminal rate.
Analysis and Implications
The unexpected growth in Japan’s economy presents both opportunities and risks for investors and individuals alike. With an optimistic outlook for the third quarter and potential rate hikes from the BOJ, there are possibilities for investment growth and economic stability. However, the lingering risks and uncertainties highlight the need for caution and strategic financial planning.