Japan’s economy expanded at a slower-than-expected pace in the April-June quarter, with growth weighed down by stagnant private consumption and weaker capital spending as higher raw material costs and supply disruptions linked to the Middle East conflict pressured the economy.
Government data showed Japan’s gross domestic product (GDP) grew at an annualised 1.1% in the second quarter, below the 2.0% median forecast in a Reuters poll. The figure followed an upwardly revised 1.9% expansion in the previous quarter, marking the economy’s third consecutive quarter of growth.
On a quarter-on-quarter basis, GDP increased 0.3%, also below the 0.5% market expectation.
Private consumption, which accounts for more than half of Japan’s economic output, was flat during the quarter, falling short of the 0.5% growth expected by economists.
Capital spending also weakened, declining 1.2%, compared with expectations for a 0.4% increase.
The softer domestic demand comes as the Bank of Japan (BOJ) monitors consumption and wage trends to assess the economy’s underlying strength and determine whether conditions warrant further interest rate increases.
External demand provided some support, with net exports contributing 0.5 percentage point to overall GDP growth. Exports remained resilient on solid US demand for Japanese hybrid vehicles and continued global investment in artificial intelligence, which supported shipments of semiconductor-related equipment and components.
However, analysts warned that rising import costs and mounting upstream price pressures could eventually be passed on to consumers, potentially weighing on household spending later this year.
Private consumption could also weaken in the July-September quarter after policy and regulatory changes temporarily boosted demand for durable goods such as automobiles and air conditioners in the second quarter.
A survey by the Japan Center for Economic Research this month found that 37 economists expect Japan’s GDP growth to slow to an average annualised 0.05% in the July-September quarter.
The weaker-than-expected growth comes as the BOJ weighs the timing of its next rate increase, with economic momentum remaining a key consideration alongside inflation and wage trends.
