Japan’s Economic Growth

Japan’s economy grew more than expected in the second quarter, reversing a deep contraction from the prior quarter as increased wages helped boost private spending across the country.

GDP Growth

Gross domestic product grew 3.1% year-on-year in the June quarter, government data showed on Thursday. This reading was higher than expectations of 2.1%, improving from the 2.3% contraction seen in the first quarter. The prior quarter’s contraction was revised lower from 1.8%.

GDP grew 0.8% quarter-on-quarter, exceeding expectations of 0.6% and improving from the 0.5% contraction seen in the prior quarter.

Private Consumption

The positive reading came as private consumption as a part of GDP grew 1% quarter-on-quarter in the June quarter, much more than expectations of 0.5% and recovering from a 0.6% decline in the March quarter. This recovery followed major Japanese labor unions negotiating significant wage hikes this year, the effects of which are now being felt across the country.

Bank of Japan’s Forecast

The stronger performance aligns with the Bank of Japan’s forecast that private spending will boost the economy in the coming quarters, providing the central bank more room to raise interest rates.

The BOJ had increased rates by 15 basis points in July and indicated more hikes this year amid an improving economy.

Capital Spending and External Demand

Capital spending also improved from the prior quarter, rising 0.9%, as expected, while external demand fell 0.1%, also as anticipated.