Japan's economy grew faster than expected in the second quarter of 2024, recovering strongly from the previous quarter thanks to increased consumption, according to data released on August 15.
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| A corner of Tokyo, Japan. (Source: AFP) |
Specifically, the annual growth rate adjusted for inflation reached 3.1%. Real gross domestic product (GDP) increased by 0.8% compared to a decrease of 0.6% in the first quarter of 2024.
Private consumption, which accounts for more than half of GDP, rose 1 percent, compared with forecasts for a 0.5 percent increase and the first increase in five quarters. Private consumption has been a weak spot in the economy as households grapple with rising living costs, partly due to higher import prices due to a weak yen.
Capital spending also rose 0.9% in the second quarter of 2024, in line with economists' forecasts in a Reuters poll, as Japanese companies invest in automation to address labor shortages.
The figures reinforce the Bank of Japan's (BoJ) forecast that a solid economic recovery will help inflation reach its 2% target sustainably and "create the basis" for further interest rate hikes.
The BoJ raised interest rates in July 2024 and laid out plans to scale back bond purchases in an effort to gradually phase out its massive monetary stimulus.
Rising prices of everyday goods have put heavy pressure on consumers, raising questions about whether domestic demand can remain resilient.
The Japanese government has stressed the need to raise wages to support households. Real wages rose for the first time in more than two years in June 2024, a positive development for consumers.
In addition, the government decided to cut income tax and residence tax in June to reduce inflation. Economists are also closely watching the sustainability of this growth momentum.
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