Japan Economy Cools as Domestic Demand Loses Steam

Japan's economy has cooled down in recent months, with GDP growth slowing to a 1.1% annualized pace in April-June. Household spending, which accounts for more than half of the economy, remained flat during this period. Business investment also declined by 1.2%, indicating that domestic demand is losing steam.

On the other hand, exports and net trade continued to hold up, driven by strong demand from the US for Japanese hybrid vehicles and global spending on AI-related goods that supports semiconductor equipment and component shipments.

The Bank of Japan (BOJ) has been closely watching wage gains and their impact on domestic spending. If consumption stays sluggish while costs continue to rise, it may strengthen the case for a cautious approach to further interest-rate hikes.