Japan's Economy Expands in Q1 as BOJ Rate Decision Looms
Japan's economy continued to grow in the first quarter, as investors looked ahead to a closely watched Bank of Japan policy meeting later this month.The country's economy expanded at an annualized rate of 1.8% in the first quarter, according to final data released by the Cabinet Office on Monday.The reading was revised down from the preliminary estimate of 2.1% growth.The final figure exceeded the market consensus forecast for a 1.3% increase, according to Trading Economics.Business investment fell 0.7% from the previous quarter, a sharp downward revision from an initial estimate of 0.3% growth. Meanwhile, private consumption, which makes up more than half of Japan's economy, rose 0.3%, matching the preliminary reading.The data comes as attention turns to the Bank of Japan's June 15-16 policy meeting, where policymakers are expected to consider another interest-rate increase.The growth figures are unlikely to derail expectations for further policy tightening.Bank of Japan Governor Kazuo Ueda signaled that a rate increase remains under consideration if policymakers judge that inflation risks outweigh the potential economic damage from the conflict in the Middle East."Even if the situation remains unclear, should it be judged that upside risks to prices outweigh downside risks to economic activity, it will be necessary to thoroughly discuss the pros and cons of raising the policy interest rate," Ueda said last week.Markets are pricing in roughly an 80% chance that the Bank of Japan will raise its short-term policy rate to 1% from 0.75% at its June 15-16 policy meeting."The impact of the Middle East situation didn't materialize in the first quarter, but it is likely to become apparent going forward," Shinichiro Kobayashi, chief economist at Mitsubishi UFJ Research and Consulting, was quoted as saying by Bloomberg News."Given the recent remarks from the BOJ, it appears it is focusing more on curbing inflation, so I expect it to raise interest rates this month," he added.A move to 1% would lift the benchmark rate to its highest level since 1995 and mark the latest step in the central bank's effort to normalize monetary policy.Japan's wholesale prices rose 4.9% in April from a year earlier, accelerating at the fastest pace in three years as the war in Iran boosted oil and chemical prices.Prime Minister Sanae Takaichi's government approved a $19 billion supplementary budget on Wednesday to help cushion households from higher energy costs stemming from the conflict in the Middle East.The yen's weakness has added to inflationary pressures in resource-poor Japan, which relies heavily on energy imports from the Middle East.Japanese authorities have spent a record amount of foreign-exchange reserves over the past month to support the currency after it weakened beyond the 160-per-dollar level, signaling concerns about the impact of a weaker yen on import costs and inflation.
