Japan’s 2Q24 GDP surpassed expectations, with the economy expanding more than anticipated. Private consumption, business spending, residential investment, and public investments all contributed to growth, offsetting the negative impact of net exports and net private inventories. UOB Group economist Alvin Liew highlights these positive developments in Japan’s economy.
Looking ahead, expectations are high for the growth rebound to continue into the 3rd quarter. Factors such as an extension of the consumption rebound, influx of tourists, and accelerated tech investments are expected to support this growth. However, there are also downside risks to consider. Despite the strong rebound in 2Q GDP, the overall GDP for the first half of the year contracted by -0.86% year-on-year. As a result, UOB Group has lowered its GDP growth forecast for 2024 to 0.2%, down from 1.9% in 2023, before picking up to 1.7% in 2025.
In terms of monetary policy, the Bank of Japan (BOJ) is expected to continue on a rate tightening trajectory, although it may not be a continuous cycle. The BOJ is likely to follow a limited normalization path, with policy rates unchanged in the next September 2024 Monetary Policy Meeting (MPM). A 25-basis point hike to 0.50% is expected in the 4th quarter of 2024, which UOB Group believes will be the terminal rate.
Overall, Japan’s economic performance in the 2nd quarter of 2024 has been positive, with various factors contributing to growth. The outlook for the 3rd quarter is also optimistic, with expectations of continued growth driven by consumption, tourism, and tech investments. However, there are potential risks to consider, and UOB Group has revised its GDP growth forecast for 2024 accordingly. The BOJ is expected to maintain its rate tightening trajectory, with a modest increase in the policy rate anticipated in the 4th quarter of 2024.
In conclusion, Japan’s economy has shown resilience in the face of challenges, with growth exceeding expectations in the 2nd quarter of 2024. Despite this positive performance, there are lingering downside risks to consider as the year progresses. The outlook for the 3rd quarter remains positive, supported by continued consumption and investments. The BOJ’s monetary policy is expected to follow a limited normalization path, with a rate hike anticipated in the 4th quarter of 2024. Overall, Japan’s economic outlook remains cautiously optimistic, with a focus on sustaining and building upon the momentum of growth seen in the recent quarter.
