Japan Q2 GDP revised up sharply, boosts case for tax hike

Mon Sep 9, 2013 3:24am EDT
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By Leika Kihara

TOKYO (Reuters) - Japan's economy expanded much faster than initially expected in the second quarter, adding to growing signs of a solid recovery taking hold and fortifying the case for Prime Minister Shinzo Abe to proceed with a planned sales tax hike next year.

The upbeat data came hours after Tokyo won its bid to host the 2020 Summer Olympics, which policymakers hailed as another tailwind propelling the world's third-largest economy out of years of grinding deflation.

The Olympic news and GDP data propelled the benchmark Nikkei .N225 up 2.5 percent to close at 14,205.23, its highest closing since August 6.

A marked improvement in capital expenditure led to an upward revision in April-June gross domestic product (GDP) to an annualized 3.8 percent expansion from a preliminary 2.6 percent, data from the Cabinet Office showed on Monday.

The third straight quarter of growth, which roughly matched the median market forecast, underscored the strength of Japan's recovery and boosted the chance the government will proceed with a two-staged hike in the sales tax.

"Companies are replacing old equipment, which led to the large upward revision to GDP," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management. "This means the government can raise the sales tax as scheduled."

Bank lending rose 2 percent in the year to August with lending by major banks marking the fastest increase in more than four years, separate data showed, suggesting that the improving outlook is spurring more borrowing for fresh investment.


A man walks past an artwork displayed in Tokyo's business district September 8, 2013. REUTERS/Yuya Shino