Japan GDP Growth Slows Amid Weak Household Spending

Japan's economy grew at an annualized rate of 1.1% in the second quarter, falling short of economists' expectations for a 2.0% median forecast and below the revised 1.9% growth recorded in the January-March quarter.

The country's private consumption was a major drag on the economy, declining 0.02% in the second quarter after eight quarters of growth. Household spending, which accounts for more than half of Japan's economic output, was affected by temporary factors such as earlier policy and regulatory changes that boosted demand for automobiles and air conditioners, as well as measures like free education and higher tobacco prices.

Despite this weakness in domestic components, economists say corporate investment plans remain relatively firm. Net external demand added 0.5 percentage point to overall GDP growth, largely due to imports falling sharply following temporary disruptions to crude oil shipments through the Strait of Hormuz.

The Bank of Japan's rate hike expectations remain intact, with a possibility of another increase as early as September. However, economists caution that the central bank may move more gradually if household spending remains under pressure and rising import costs pose a potential risk.