Japan Q2 capex recap fuels optimism for a domestic recovery, and case for more BOJ hikes

Japanese corporate spending on plant and equipment surged in the second quarter:

• Japan Q2 business capex +7.4% y/y (vs. expected +9.9%, prior +6.8%)

Analyst takes I’m seeing are noting the data is fuelling optimism for a domestic-led recovery and bolstering the case for more interest rate hikes from the Bank of Japan in the coming months.

The strong capex data, set to influence revised GDP figures due on September 9, aligns with a recent factory survey showing a softer contraction in manufacturing activity. indeed, we saw some improvement in the manufacturing PMI data released also todaY:

• Jibun Bank Japan manufacturing purchasing managers index 49.8 in August (vs. 49.1 prior)

This reinforces the view that domestic demand, driven by business investment, will be crucial for Japan’s economic growth as exports face challenges from uncertainties in the U.S. and Chinese markets.

Preliminary figures indicate a robust rebound in Japan’s economy during the second quarter, following a slump earlier in the year, primarily due to a surge in consumption. The positive momentum supports the argument for the Bank of Japan to consider further rate increases despite the headwinds in the export sector.

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USD/JPY update, down from the area around 146.60 I highlighted as an area where we had work to do earlier:

This article was written by Eamonn Sheridan at www.forexlive.com.