Japan's Economy Rebounds on Boost in Consumption
Strong Growth, Inflation Support Further Rate Hikes
Key Points:
- Japan's economy rebounded in the second quarter on the back of an increase in private consumption.
- The economy expanded by a faster-than-expected annualized 3.1% in April-June, rebounding from the previous quarter's contraction.
- The Bank of Japan is expected to press ahead with further rate hikes to combat inflation.
Japan's economy experienced a strong rebound in the second quarter, driven by a surge in private consumption. The growth was better than expected, with the annualized rate coming in at 3.1%, according to government data released on Thursday.
The rebound was largely attributed to an increase in consumer spending, which rose for the first time in more than a year. This was fueled by the government's easing of COVID-19 restrictions and the recovery from the Omicron wave.
The Bank of Japan (BOJ) has welcomed the strong rebound, which supports its forecast that a solid economic recovery will help inflation sustainably hit its 2% target. The BOJ has already raised interest rates twice this year and is expected to press ahead with further hikes to combat inflation.
According to Reuters, the core inflation rate in Japan accelerated in May due to energy levies, but an index that strips away the effect of fuel slowed. This suggests that underlying inflationary pressures may be moderating, giving the BOJ some room to maneuver.
However, the BOJ is likely to remain cautious, as the global economic outlook remains uncertain and the impact of the conflict in Ukraine is still being felt.
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