Japan Q2 GDP Commentary: Growth Revised Upward, Yen May Rise

TradingKey - On 8 September 2025, Japan released the revised Q2 GDP figures. The data showed that real GDP grew by 0.5% quarter-on-quarter, surpassing market expectations of 0.3% and the previous quarter’s 0% growth. This translated to an annualised growth rate of 2.2%. The upward revision of overall GDP was primarily driven by sustained increases in personal consumption and net exports.

Looking ahead, given Japan’s robust economic recovery and persistently high inflation, we expect the Bank of Japan to resume its rate-hiking cycle in October. In contrast, the Federal Reserve is highly likely to restart rate cuts in September. As the policy rate differential between the two countries narrows and Japan’s economy continues to demonstrate resilience, we anticipate an appreciation in the yen exchange rate.

Source: TradingKey

Main Body

On 8 September 2025, Japan released revised Q2 GDP figures. The data indicated real GDP growth of 0.5% quarter-on-quarter, surpassing market expectations of 0.3% and the previous quarter’s 0% growth. This translated to an annualised growth rate of 2.2% (Figure 1).

Figure 1: Market Consensus Forecasts vs. Actual Data

Source: Refinitiv, TradingKey

Compared to the initial estimate, the revised figures raised quarter-on-quarter growth by 0.2 percentage points and annualised growth by 1.2 percentage points (Figure 2). This adjustment marks Japan’s fifth consecutive quarter of non-negative growth (Figure 3). The upward revision in overall GDP was primarily driven by personal consumption, which accounts for over half of GDP, increasing from an initial quarter-on-quarter growth estimate of 0.2% to 0.4%. Within personal consumption, categories such as dining out, gaming software, and computers showed particularly strong performance. Additionally, exports grew by 2.0% and imports by 0.6%, contributing to sustained growth in net exports.

Figure 2: Japan Q2 GDP Initial vs. Revised Value

Source: Refinitiv, TradingKey

Figure 3: Japan Real GDP (%)

Source: Refinitiv, TradingKey

Although Japan’s inflation has gradually eased from its peak, the CPI is expected to remain significantly above the Bank of Japan’s (BoJ) 2% target in the short term (Figure 4). On the monetary policy front, on 30 July 2025, the BoJ maintained its policy rate at 0.5%, signalling a softening of its hawkish stance (Figure 5). However, we believe this situation is unlikely to persist in the long term.

Given Japan’s robust economic recovery and persistently high inflation, we expect the BoJ to adopt a hawkish stance again and resume rate hikes in October. In contrast, the Federal Reserve is highly likely to restart rate cuts in September. As the policy rate differential between the two countries narrows and Japan’s economy continues to show resilience, we anticipate an appreciation in the yen exchange rate.

Figure 4: Japan CPI (%, y-o-y)

Source: Refinitiv, TradingKey

Figure 5: BoJ Policy Rate (%)

Source: Refinitiv, TradingKey