Consumer spending growth drove Japan's third-quarter GDP growth rate higher than expected, supporting the Bank of Japan to continue raising interest rates.

The data shows that Japan's economic growth rate is slightly faster than expected, providing support for the Bank of Japan to continue raising interest rates and easing pressure on the Japanese government. Data released on Friday showed that Japan's seasonally adjusted real GDP annualized growth rate for the third quarter was 0.9%, lower than the downwardly revised 2.2% for the previous quarter but higher than the market's general expectation of 0.7%. The data shows that private consumption growth accelerated to 0.9% from the previous quarter, well above market expectations of 0.2% growth, despite a large typhoon affecting market sentiment during this period. Japanese authorities stated that spending on cars, food, and mobile phones increased. Nobuyasu Atago, Chief Economist at Rakuten Securities Economic Research Institute in Japan, stated, "We can see that consumer spending is recovering. Despite high inflation, we can see that funds are flowing into consumption due to wage increases." "We can say that the economy is continuing to operate in a positive cycle." Yoshiki Shinke, Senior Executive Economist at Dai-ichi Life Research Institute in Japan, stated in a report before the release of Japan's third-quarter GDP data on Friday that the data may lead the Bank of Japan to continue on the path of policy normalization, as the central bank may maintain its view of overall stable consumption unless affected by a nationwide disaster. Nobuyasu Atago agreed with this view. He said, "I think this data has relieved the Bank of Japan. The likelihood of the Bank of Japan raising rates in December is increasing." Taro Kimura, Senior Economist at Bloomberg Economics Japan, said, "Surprisingly, Japan's economic growth is unexpectedly strong, and it is driven by consumer spending stronger than expected. For the Bank of Japan, these data may support its view that the Japanese economy is strong enough to withstand further stimulus reductions and bring it closer to the next rate hike." Revised data for Japan's third-quarter GDP will be released on December 9. This is the last growth data that the Bank of Japan will receive before its policy meetings in December and January. Most economists surveyed expect the Bank of Japan to raise rates in the next month or in January. Additionally, specific data shows that business investment in Japan's third quarter fell by 0.2%, in line with market expectations; net exports decreased by 0.4%, compared to an expected growth of 0.1%; private inventories increased by 0.1%, in line with market expectations of 0%. Overall, the data released on Friday shows that the impact of a weaker yen on the economy is mixed. A weaker yen is traditionally seen as a factor that drives economic growth through strong exports. While exports have mostly been growing this year, a weaker yen could reignite input inflation as it raises the costs of goods, materials, and food purchased from abroad. The Japanese authorities had intervened in the foreign exchange market to support their currency, but the impact was only temporary. After Trump won the US presidential election last week, the yen accelerated its decline, breaking the threshold of 155 yen per US dollar earlier this week. Businesses continue to pass on the rising operating costs to consumers by raising prices, a trend that has helped Japan's inflation rate stay at or above the Bank of Japan's target level for the past 30 months. Therefore, strong nominal wage growth has not been consistently translated into real wage growth, inhibiting consumers from loosening their purse strings. Authorities hope that the momentum of wage growth will remain stable as unions and employers prepare for annual salary negotiations. Prime Minister Shozo Kato is facing pressure to support families coping with ongoing inflation. The Japanese government is expected to announce a stimulus package as early as next week, including cash payments and childcare subsidies to low-income families, and promises to resume subsidies from January to March next year to reduce electricity and gas bills. Kato stated that he intends to secure additional budget funds to provide funding for this stimulus plan.