Japan: BoJ path questioned on weak demand – Societe Generale

Societe Generale economists Reo Sakida and Jin Kenzaki say Japan’s 2Q GDP data were weaker than expected, with consumption and capex both disappointing. A higher GDP deflator may support near-term BoJ hike expectations, but persistent weakness in private demand could challenge a faster and higher rate path and worsen the debt/GDP ratio through front‑loaded fiscal spending relative to private investment.

Weak demand complicates BoJ hiking outlook

"Headline growth missed consensus, with consumption and capex—the two drivers we had expected to support growth—both disappointing."

"The higher GDP deflator should support near-term BoJ hike expectations, but if weakness in consumption and capex continues, it would raise concerns over a faster and higher hiking path."

"Continued services weakness would flash a yellow light for the BoJ."

"One implication for Takaichi’s investment-focused policy is that fiscal spending could come through well before private investment and potential growth respond, temporarily worsening the debt/GDP ratio—a negative for JGBs."

"This is an important component to watch, as sustained weakness in services consumption would raise a warning flag for the BoJ’s faster and higher rate-hike path."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)