Japan GDP revision cements BOJ hike bets, yen and Nikkei in focus

Japan's second-quarter gross domestic product (GDP) was revised upward to an annualized 1.4% from the preliminary estimate of 1.1%. While the reading fell slightly short of economists' median forecasts ranging between 1.6% and 1.8%, quarterly growth met projections at 0.4%. The revision was largely supported by resilient capital expenditure, as private consumption remained flat and external demand contributed positively. In addition to the GDP data, separate reports indicated that July real wages climbed 2.4% year-on-year, marking seven consecutive months of wage growth and the fastest pace of increase since May 2021. The robust macroeconomic backdrop effectively removes key hurdles for the Bank of Japan to continue tightening monetary policy. Financial markets have rapidly cemented rate hike expectations, with swap markets pricing in a 98% probability of a 25-basis-point increase to 1.25% at the upcoming September 18 policy meeting. An additional hike to 1.5% is fully priced by January. This firm tightening trajectory provides substantial fundamental support for the Japanese yen while presenting mixed headwinds for domestic equities, particularly rate-sensitive Nikkei components.