Japan's Economy Grows Slower Than Expected
John Power
Japan's GDP grew 0.3% in the second quarter, missing forecasts of 0.5%, as consumer spending and capital investment stalled. The slower growth could affect the Bank of Japan's upcoming rate decision.
According to official data released on Monday, Japan's economy slowed in the second quarter of this year due to stagnant consumption and capital expenditure.
The Cabinet Office said gross domestic product (GDP) grew 0.3% in the April–June period compared to the first quarter. This marked the third consecutive quarter of growth, but it was lower than the previous quarter's 0.5% expansion and fell short of the 0.5% growth analysts had predicted.
On an annualized basis, the world's fourth-largest economy grew 1.1%. A earlier survey of 37 economists conducted by the Japan Center for Economic Research, a think tank, had forecast annual growth of 1.67%.
The data showed personal consumption was flat in real terms, while capital expenditure fell 1.2%, or 4.6% on an annualized basis, offsetting strong exports. By component, net exports contributed 0.5 percentage points to GDP growth, while domestic demand subtracted 0.2 percentage points.
Norihiro Yamaguchi, senior Japan economist at Oxford Economics, said growth would stall in the second half of 2026 as businesses pass higher energy costs on to consumers. “Although exports of goods related to artificial intelligence (AI) will remain strong for the time being, sluggish global economic activity in non-AI sectors will limit the overall rise in exports,” he wrote in a note to clients.
Japan imports nearly all of its crude oil, making it vulnerable to high energy costs stemming from the conflict involving the U.S., Israel, and Iran. Cost pressures on Japanese consumers have been exacerbated by a weak yen, which hit a 40-year low against the U.S. dollar last month.
The weaker-than-expected growth data could complicate the Bank of Japan's (BOJ) upcoming interest rate decision in September, as the central bank pushes to normalize monetary policy after decades of ultra-low and negative borrowing costs. In June, the BOJ raised its benchmark rate to 1%, the highest level in over three decades. The central bank began moving away from its ultra-loose policy in 2024 when it announced its first rate hike since the global financial crisis of 2008.
Japan's stock market rose during Monday's trading session, with the Nikkei 225 gaining 0.3%. South Korea's KOSPI and Hong Kong's Hang Seng also rose, by 2.4% and 1.6%, respectively.
