Japan: Q2 GDP Slows; BOJ Rate Hike Less Likely

Japan's second-quarter (April - June) annualized GDP rose only 0.1% sequentially and 0.5% year-over-year, compared to economists' average estimate of 0.2% and 0.9%, respectively. The chance of a Bank of Japan [BOJ] follow-on rate hike at its Aug. 22 - 23 meeting now stands at 33%, after reaching 75% last Thursday, according to Credit Suisse. First-quarter revised GDP was 3.2% on an annualized basis. Economists don't seem particularly surprised by the Q2 reading, but say the data is not encouraging for the BOJ to raise rates again, after pausing since February. However, BOJ governor Toshihiko Fukui previously said the Bank expects slower growth in Q2 and that won't determine the decision of the August meeting. Further complicating matters is recent market turmoil stemming from the U.S. subprime induced liquidity crunch. The yen rose slightly against the U.S. dollar to around 117.85. The Nikkei 225 gained 0.2% to 16,800.

Sources: Bloomberg, MarketWatch
Commentary: Japan: Nomura's August Individual Investor Survey • BoJ Holds Again at 0.5%; Hike Still Expected in August
Stocks/ETFs to watch: MTU, MFG, IX. ETFs: EWJ, FXY

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