Japan's Q2 GDP grows 1.1%, missing forecasts

Japan's economy expanded at an annualized rate of 1.1% in the April-June quarter, missing market expectations of around 2% and slowing from 2.1% in the previous quarter, according to Cabinet Office data released Monday. The reading translates into a quarterly rise of 0.3%, also below the 0.5% forecast Source: AP News, CNA, CNBC.

Key components

• Private consumption was flat, falling short of a 0.5% increase forecast, while capital spending fell 1.2% against expectations of a 0.4% rise Source: CNA.
• Net exports added 0.5 percentage points to growth, driven by solid US demand for hybrid vehicles and AI-related semiconductor shipments Source: CNA, CNBC.
• Government consumption rose 1.6% Source: AP News.

Headwinds and outlook

Growth was hampered by the Iran war, which has pushed up energy costs for resource-poor Japan, and a weak yen that raises import prices Source: AP News, Al Jazeera. The yen hit a 40-year low in July, prompting joint intervention by Tokyo and Washington Source: Euronews.

The Bank of Japan raised its GDP outlook to 0.6% for the fiscal year ending March 2027, but analysts expect sluggish growth ahead as companies pass on higher costs Source: CNBC, Al Jazeera. A survey by the Japan Center for Economic Research forecasts annualized growth to slow to just 0.05% in July-September Source: CNA.

Market reaction

Despite weak data, the Nikkei 225 rose 0.3% on Monday, while the 10-year JGB yield hit a 30-year high of 2.93% earlier in the day, reflecting inflation and expectations of a BOJ rate hike as soon as September Source: Euronews, Al Jazeera.