Japan Economy Grows at Slower Pace Amid Weak Household Spending

Japan's economy grew at a slower-than-expected pace in April-June, due to lacklustre household spending and business investment. The country's gross domestic product rose 1.1% in annualised terms, missing a median market estimate of 2.0%. This marks the first drop in private consumption in eight quarters.

The weakness stemmed from one-off factors, including policy and regulatory changes that temporarily boosted demand for durable goods such as automobiles and air conditioners, but were offset by fee-free education and higher tobacco prices. Capital spending, a key driver of private demand, fell 1.2% in the second quarter.

Analysts say much of the drag came from temporary factors, and robust economic momentum will likely keep the case for imminent interest rate hikes intact. The Bank of Japan is now widely expected to raise interest rates as soon as September.