Japan GDP Grows 1.1% as Domestic Demand Slumps

The Cabinet Office of Japan reported that the economy grew at an annualized rate of 1.1% in the second quarter ending June 30. This figure fell short of economist forecasts of 2% and marked a slowdown from the 1.9% pace recorded in the previous quarter.

Domestic weakness drove the slump, characterized by flat private consumption and a 1.2% non-annualized decline in capital investment. Rising living costs and inflation dampened consumer spending, while supply chain disruptions and high input costs linked to conflict in the Middle East hindered business activity. Net exports provided a partial offset, contributing 0.5% to GDP through strong overseas demand for automobiles and electronics.

In response to the economic slowdown, Prime Minister Sanae Takaichi implemented utility cost subsidies and announced plans to reduce the food sales tax to 1% beginning in April. Despite the weak domestic data, market traders expect the Bank of Japan to raise the benchmark interest rate during its September 18 policy meeting.