TOKYO--The Japanese economy grew more quickly than initially estimated in the July-September quarter, fueling expectations that the Bank of Japan will raise interest rates soon and lending further strength to the yen.
Real gross domestic product expanded 1.2% on an annualized basis in the quarter, compared with 0.9% growth in the preliminary estimates released in mid-November. The Japanese economy grew 0.3% from the previous quarter, revised government data showed on Monday.
"Confirmation of solid growth provides fresh support to views that the central bank will lift its policy rate soon, potentially even later this month," said BOJ Gov. Kazuo Ueda.
Renewed hopes for an early rate increase sent the yen to near 149.70 against the dollar after the data release from around 150.10 in early Tokyo trading.
The stronger growth print reflects upward revisions to capital investment and exports.
Capital expenditure fell 0.1% from the previous quarter, compared with the initial estimate of a 0.2% decline. The upward revision was well anticipated because of the solid reading in the Ministry of Finance's recent corporate activity survey.
External demand, or exports minus imports, took 0.2 percentage point from growth, compared with minus 0.4 percentage point in the preliminary estimate.
"With high corporate profits transferring into wages and capital investment, the Japanese economy is expected to continue on a recovery track, driven by domestic demand," said Mizuho Research & Technologies economist Saisuke Sakai.
Monday's data showed that consumer spending rose 0.7% from the previous quarter. Although slightly lower than initially estimated at a 0.9% rise, it confirmed a second straight quarter of increased private consumption.
However, going forward Japan's economy faces headwinds from a slowdown in overseas economies--including sluggishness in China--and potentially higher trade tariffs under President-elect Donald Trump that will likely affect exports from Japan.
"Although the Bank of Japan does not have to wait for full details of President-elect Trump's economic policies, it is reasonable to take some time to assess if there is little risk of [Japan's] monetary policy falling behind," SMBC Nikko Securities economists noted.
Domestic political considerations are another factor that could prompt BOJ to take a wait-and-see approach as lawmakers discuss a budget for economic stimulus measures aimed at helping households with cost-of-living pressures and considering raising tax-free income thresholds which might reduce government's tax revenue.