Japan's economy grows slower than expected in Q2

Japan's economy expanded at a slower pace than anticipated during the first quarter, according to government figures released on Monday. Private consumption weakened due to rising raw material costs and disruptions in supply chains resulting from the conflict in the Middle East. The annualized growth rate for the economy in Q2 was 1.1 percent, which is lower than the median market estimate of 2.0 percent growth.

This follows an upward revision of 1.9 percent growth in the previous quarter, keeping the country's economic growth streak at three consecutive quarters. The quarterly growth rate stood at 0.3 percent, falling short of the median estimate of a 0.5 percent increase. Private consumption, which makes up over half of economic output, remained unchanged, below the market estimate of a 0.5 percent growth.

The Bank of Japan is closely monitoring private consumption, wage trends, and capital spending to assess economic strength and decide on further interest rate hikes. Capital spending declined by 1.2 percent in Q2, while net external demand, the difference between exports and imports, contributed 0.5 percentage points to growth. Japanese exports continued to perform well, driven by strong demand from the US for Japanese hybrid vehicles and sustained global investment in artificial intelligence, particularly in semiconductor-related equipment and components.

However, analysts warned that increasing import costs and price pressures might eventually affect consumers, potentially slowing down spending later in the year. Private consumption could also face a slowdown in the July-September quarter, as policy and regulatory changes temporarily boosted demand for durable goods such as cars and air conditioners in Q2.

A recent survey by the Japan Center for Economic Research indicated that 37 economists predicted annualized GDP growth to slow to an average of 0.05 percent in the July-September quarter.