Analysts fear that a rare unscheduled revision to Japan’s first-quarter gross domestic product (GDP) may lead to a sharp downgrade.
Some have said the move could affect the central bank’s growth forecasts and the timing of its next interest rate hike.
The government said on Tuesday it will revise GDP figures for January-March to reflect corrections to construction orders data, and announce the findings on Monday July 1.
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Given the big downward revision to the construction orders data, the revised January-March GDP figures are likely to show the economy contracted more than expected, some analysts say.
Possible impact on interest rates
Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, expects the revision to show Japan’s economy shrank an annualised 2.7% in the first quarter, much bigger than the current estimate of a 1.8% contraction.
The revision is likely to push down Japan’s economic growth for the fiscal year that ended in March to 1.0% from 1.2%, and may lead to a downgrade in the current fiscal year’s growth projections including for the Bank of Japan, he said.
“What’s worrying is that the revision could affect monetary policy,” by forcing the BOJ to trim its growth projections in fresh quarterly forecasts due at its next meeting on July 30-31.
Many economists expect the central bank to hike rates from current levels near zero sometime this year, with some betting on the chance of action at the July meeting.
“It could make it somewhat difficult for the BOJ to justify raising interest rates if it were to sharply downgrade its fiscal 2024 forecast,” Shinke said.
The BOJ currently projects the economy to expand 0.8% in fiscal 2024. It has signaled readiness to raise interest rates if the economy moves in line with its forecast, and heightens the chance of inflation durably hitting its 2% target.
Japan’s economy shrank an annualised 1.8% in the first quarter on weak consumption and exports, data released on June 10 showed, after a 0.4% increase in the previous quarter.
The July 1 revision may also lead to downgrades in GDP figures for the third and fourth quarters of last year, analysts say.
- Reuters with additional editing by Jim Pollard
NOTE: The headline on this report was amended and a link inserted on June 26, 2024.
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