Japan's Economy Slows Despite Upbeat Corporate Data

Japan's economic growth unexpectedly slowed in the three months through June as capital spending continued to slump, a Cabinet Office report revealed on August 17. The country's real gross domestic product (GDP) grew 1.1 percent on an annualized basis during this period, which is slower than the revised 1.9 percent pace in the previous quarter and fell short of economists' forecast for 2 percent growth.

The slump in capital investment was more pronounced, with a decline of 1.2 percent on a non-annualized basis, exceeding the revised 1 percent drop in the previous period. This missed the estimate for 0.5 percent growth.

Economist Keiji Kanda of Daiwa Institute of Research attributed the weakness to consumption, stating that 'consumption was quite weak' and that 'the decline in non-durable goods was larger than expected.'

The slowdown could complicate the Bank of Japan's (BOJ) policy communications as it weighs the timing of its next rate increase. As of August 17, there was an 80 percent likelihood of the BOJ hiking its benchmark rate when it decides policy on September 18.