Japan’s Q2 Economic Growth Bolsters Case for BOJ Rate Hike

Japan's economy expanded at an annualized 1% pace in Q2, marking a sharp acceleration from Q1's meager 0.1% growth. The rebound was fueled by resilient exports and robust business investment, with export volumes rising 2% despite U.S. tariff pressures.

Tourism emerged as a bright spot, with foreign visitor spending jumping 18% as arrivals hit record levels. Domestic demand showed surprising strength—business investment surged 1.3%, outpacing forecasts, while private consumption edged up 0.2%.

The data strengthens arguments for monetary tightening. "This GDP print provides the BOJ with ammunition for a near-term hike," said economist Taro Kimura, noting the economy's ability to withstand external headwinds. Markets now price a 42% chance of an October rate increase.