Japan's Economy Surges with Impressive 3.1% Growth in Q2, Driven by Increased Consumption

Japan's economy experienced a surprising 3.1% annualised growth in April-June, driven by a rise in consumption, which supported the Bank of Japan's forecast for sustainable inflation. This contrasts with a 2.3% slump in the previous quarter, and suggests a promising economic recovery, potentially leading to increased interest rates.

Japan's economy expanded at an impressive annualised rate of 3.1% in the April-June quarter, exceeding expectations and marking a significant rebound from the previous quarter's slump, official data revealed on Thursday. The robust growth was primarily due to a strong recovery in private consumption.

This performance supports the Bank of Japan's (BOJ) forecast that solid economic growth will help achieve sustainable inflation at its 2% target, potentially justifying further interest rate hikes. The 3.1% increase surpassed the median market forecast of 2.1%, and followed a revised 2.3% contraction in the first quarter.

Private consumption, which makes up more than half of Japan's economic output, grew by 1.0%, beating expectations. Capital spending also saw a notable rise, while external demand slightly negatively impacted growth. Responding to the improved economic outlook, the BOJ raised interest rates last month and outlined plans to reduce its extensive bond-buying program.

(With inputs from agencies.)