Leica Kihara
TOKYO (Reuters) – An unusual, unexpected revision to Japan’s first-quarter gross domestic product (GDP) figures could lead to a larger downward revision, some analysts said, potentially affecting the central bank’s growth forecast and the timing of the next interest rate hike.
The government said on Tuesday it would revise GDP figures for January-March to reflect revisions to construction orders data and release the results on July 1.
Some analysts say the revised GDP reading for the first quarter is likely to show the economy shrank more than expected, given the sharp downward revision in construction orders data.
Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, expects the revised figures to show Japan’s economy contracted at an annualized rate of 2.7% in the first quarter, much larger than the current forecast of a 1.8% contraction.
The revision could push Japan’s economic growth rate for the fiscal year ended March down to 1.0 percent from 1.2 percent and could lead to downward revisions to economic growth forecasts for the current fiscal year, including by the Bank of Japan, he said.
“The concern is that this revision could have an impact on monetary policy and force the BOJ to revise down its growth forecast in its quarterly outlook due to be released at its next meeting on July 30-31.”
Many economists expect the central bank to raise interest rates from their current near-zero levels sometime this year, and some are betting it could act at its July meeting.
“If the BOJ significantly lowers its forecast for fiscal 2024, it may become a little more difficult to justify raising interest rates,” Arata said.
The Bank of Japan currently projects economic growth of 0.8% in fiscal 2024, signaling a readiness to raise interest rates if the economy performs as expected, increasing the likelihood that inflation will persistently hit its 2% target.
Japan’s economy contracted at an annualized rate of 1.8% in the first quarter due to weak consumption and exports, after growing at a 0.4% rate in the previous quarter, according to data released on June 10. Analysts say the July 1 revision may also result in downward revisions to GDP figures for the third and fourth quarters of last year.
(Reporting by Rayka Kihara; Editing by Sri Navaratnam)
