Japan's Economic Growth Slows to 1.1%, Complicating BoJ's Rate Hike Plans

Japan's economic growth unexpectedly slowed in the second quarter to an annualized rate of 1.1%, lower than the expected 2% and a revised 1.9% pace in the previous quarter, according to a Cabinet Office report.

The slowdown was driven by weak capital spending, which fell 1.2% on a non-annualized basis, missing the estimate for 0.5% growth, while private consumption came in flat, missing the consensus estimate for a 0.4% advance.

Keiji Kanda, chief economist at Daiwa Institute of Research, stated that 'consumption was quite weak' and that the decline in non-durable goods was larger than expected.

The economic growth is being complicated by the Bank of Japan's (BoJ) policy communications as it weighs the timing of its next rate increase. Despite the slowdown, there is still a 80% likelihood of the BoJ hiking its benchmark rate when it next decides policy on September 18, according to pricing in the overnight swaps market.