Japan’s economy slows, missing growth forecasts
Japan's economy has slowed in the second quarter of the year amid moribund consumption and capital spending, according to official figures. Gross domestic product (GDP) grew 0.3 percent in the April-June period from the first quarter, data released by Japan's Cabinet Offi…
Intelligence analysis by Llama
Japan's economy has slowed down due to weak consumption and capital spending, missing growth forecasts. The country's GDP grew 0.3 percent in the second quarter, down from 0.5 percent in the previous quarter.
Imagine Japan's economy is a car. The car is slowing down because people are not buying as many things and companies are not investing as much money. This is making it harder for the car to move forward.
Analysis
Japan's Economy Slows Down Amid Weak Consumption and Capital Spending
Japan's economy has been experiencing a slowdown in the second quarter of the year, with gross domestic product (GDP) growing 0.3 percent in the April-June period from the first quarter. This is down from 0.5 percent growth in the previous quarter and misses the 0.5 percent growth analysts had forecast.
The slowdown in Japan's economy is attributed to weak consumption and capital spending. Private consumption was flat in real terms, while capital expenditures fell 1.2 percent, or 4.6 percent on an annualised basis, offsetting strong exports. The data released by Japan's Cabinet Office on Monday showed that net exports contributed 0.5 percentage points to GDP growth, while domestic demand accounted for negative 0.2 percent.
Norihiro Yamaguchi, lead economist for Japan at Oxford Economics, expects growth to be sluggish in the second half of 2026 as companies pass rising energy costs on to consumers. Yamaguchi notes that although AI-related goods exports will continue to stay robust in the near term, sluggish non-AI-related global economic activities will limit overall export gains.
Japan imports almost all of its crude oil needs, leaving it exposed to elevated energy costs stemming from the fallout of the United States-Israel war on Iran. The weakness of the Japanese yen, which last month hit a 40-year low against the US dollar, has also exacerbated cost pressures on Japan's consumers.
The weaker-than-expected growth figures could complicate the Bank of Japan's (BOJ's) upcoming decision on interest rates in September amid its push to normalise monetary policy after decades of ultra-low and negative borrowing costs. The BOJ in June raised its benchmark interest rate to 1 percent, its highest in more than three decades.
The central bank began to move away from an ultra-loose policy in 2024 when it announced its first rate hike since the 2008 global financial crisis. Japan's stock market rose on Monday with the benchmark Nikkei 225 up 0.3 percent as of 05:15 GMT. South Korea and Hong Kong's markets also made gains with the KOSPI up 2.4 percent and the Hang Seng Index 1.6 percent higher.
Key points
- Japan's economy has slowed down in the second quarter of the year.
- Gross domestic product (GDP) grew 0.3 percent in the April-June period from the first quarter.
- Private consumption was flat in real terms, while capital expenditures fell 1.2 percent.
- The Bank of Japan's upcoming decision on interest rates could be complicated by the weaker-than-expected growth figures.
- The central bank raised its benchmark interest rate to 1 percent in June, its highest in more than three decades.
If the Bank of Japan can find a way to balance its monetary policy and keep the economy growing, Japan's economy could start to pick up again. This could lead to a stronger yen and lower energy costs for consumers.
If the United States-Israel war on Iran continues to drive up energy costs, Japan's economy could continue to slow down. This could lead to higher inflation and a weaker yen, making it harder for consumers to afford everyday goods.
