Japan second-quarter growth misses estimates on weak spending
Japan’s economy expanded less than expected in the second quarter due to stagnant consumption and falling capital expenditure, though resilient exports keep the Bank of Japan on track for a September rate hike.
Japan’s gross domestic product expanded at an annualized rate of 1.1 percent in the second quarter, falling short of the 2.0 percent median market estimate. The 0.3 percent quarterly increase also lagged expectations and followed an upwardly revised 1.9 percent expansion in the prior three months.
Domestic demand provided a significant drag on the broader economy, with private consumption remaining completely flat against a forecasted 0.5 percent gain. Meanwhile, capital spending contracted by 1.2 percent instead of the anticipated 0.4 percent increase.
External demand cushioned the domestic shortfall, contributing 0.5 percentage points to overall growth. Shipments were supported by steady United States demand for hybrid vehicles and sustained global investment in artificial intelligence, which drove exports of semiconductor equipment.
Market professionals are viewing the miss as a temporary deviation rather than a structural breakdown. Kazutaka Maeda, a senior economist at Meiji Yasuda Research Institute, noted that "growth was positive, but the details were somewhat weaker than expected."
Maeda added that the disappointing figures are unlikely to alter the timing of the Bank of Japan’s next interest rate hike. He stated he does not think the data "would suggest a weakness ahead or affect the timing" of the widely anticipated September tightening.
Yoshiki Shinke, a senior executive economist at Dai-ichi Life Research Institute, attributed the consumption weakness to one-off policy shifts like free school lunches moving spending into government accounts. He also linked the capital spending drop to Middle East conflict uncertainties, noting that corporate investment plans remain firm as those disruptions ease.
Despite the headline growth miss, Shinke concluded that "the economy had remained resilient despite slower-than-expected growth." Analysts warn that upcoming quarters still face headwinds from rising import costs and upstream price pressures that could eventually squeeze household budgets.
Furthermore, a pullback in durable goods purchases is expected to weigh on third-quarter consumption following regulatory changes that temporarily boosted demand for automobiles and air conditioners. A Japan Center for Economic Research survey of 37 economists projects annualized gross domestic product growth will slow to just 0.05 percent between July and September.
