JAPAN DATA: Tokyo CPI Exceeds Expected Bounce, Services CPI Y/Y Above 2%

"*UEDA: DATA HAVE BEEN IN LINE WITH WHAT WAS IN OUTLOOK REPORT

*UEDA: TO HAVE THOROUGH DEBATE AT EVERY MEETING INCLUDING NEXT" - BBG

"BOJ GOV UEDA: OUR BASIC STANCE ON MONETARY POLICY IS LARGELY UNCHANGED FROM JULY - [RTRS]"

"BOJ GOV UEDA: NO COMMENT ON DAY-TO-DAY MOVES, ON MARKETS PRICING IN STRONG CHANCE OF SEPTEMBER RATE HIKE - [RTRS]"

Q2 GDP is released today and Bloomberg consensus expects it to rise 0.3% q/q, in line with Q1, but annual growth to slow to 1.8% from 2.5%. Growth is likely to be driven by private consumption with public spending and net exports making small contributions. Investment will probably weigh on growth after making a strong contribution in Q1. The RBA forecast GDP to rise 1.9% y/y in its August staff projections and welcomes slower growth given inflation is still above target. Despite headlines focused on the GDP print, the data will also include productivity and unit labour costs, important information for the inflation outlook and the RBA. 

• Forecasts are heavily centred around 0.3% q/q and 1.8% y/y but range from 0 to +0.6% & 1.5% to 2.0%. Westpac and NAB are around consensus.
• ANZ though is looking for a stronger print of 0.5% q/q & 2.0% y/y while CBA is below consensus at 0.1% & 1.6%.
• Q1 productivity growth was weak falling 0.6% q/q to be up 0.3% y/y but GDP per hours worked was at the same level as Q1 2023. This is a growing area of concern for the RBA as it means that the growth rate before inflation rises is lower. Average compensation rose 0.6% q/q & 4.3% y/y in Q1 down from 5.5% in Q3 2025 which has helped bring ULC growth down to 3.2% y/y.
• In terms of the partials already released, real household spending rose 0.7% q/q after 0.8% and public demand contributed 0.1pp, concentrated in expenditure, after a flat Q1.
• Construction fell 2.1% q/q but Q1 was revised up to +4.3% from 3.4%. Capex declined 3.6% q/q after an upwardly-revised 6.9%. Net exports contributed 0.1pp after detracting 0.7pp in Q1. Data centre investment is driving large swings in GFCF and tech imports.

In post-Tokyo trade, JGB futures closed weaker, -13 compared to settlement levels, after US tsys finished showing a bear-flattener, with benchmark yields 3-6bps higher, as the US & Iran traded strikes yet again, with oil surging.

• MNI FED: Barr: To Decide If Rate Hike Needed In September Fed Gov. Barr (permanent voter) warned in a speech on Tuesday that raising interest rates may be necessary in September if inflation is not moderating sufficiently, but he would be open to waiting if inflation appears to be on a path to 2%. These were his first public remarks on the economy since May. Fed Funds futures currently price ~17bp of hikes for the September meeting.
• (Bloomberg) - "Not since 2006 have yields on the longest-maturity Treasuries been this high for this long, with a gaping budget deficit, another wave of corporate issuance and a potentially decisive Federal Reserve meeting set to keep investors wary of US debt in coming weeks."
• “BOJ GOV UEDA: HELD TALKS WITH US BESSENT BUT NO COMMENT ON DETAILS ON WHAT WAS DISCUSSED" - RTRS
• “BOJ GOV UEDA: DISCUSSED WITH CENTRAL BANKS NEED TO COMMUNICATION FOR APPROPRIATE MONETARY POLICY TO ACHIEVE PRICE STABILITY AS GLOBAL ENVIRONMENT CHANGES”
• Today, the local calendar will see Monetary Base data alongside BOJ Board Member Takata Speech in Sapporo.