Japan's Economy Slows to 0.3% Growth in Q2, Missing Forecasts

Japan's economy grew at a slower pace in the second quarter than analysts had predicted. The nation's GDP expanded by 0.3% from April to June, falling short of forecasts that estimated 0.5% growth. This marks the third consecutive quarter of economic expansion, but the slowdown is concerning.

The annualized rate of growth was 1.1%, while economists had expected a 1.67% increase. Private consumption remained stagnant in real terms, and capital expenditures fell by 1.2% on an annualized basis, which was a decline of 4.6%. These factors offset the strong contribution of exports to economic growth.

Net exports added 0.5 percentage points to GDP growth, while domestic demand subtracted 0.2 percentage points. Norihiro Yamaguchi, an economist at Oxford Economics in Japan, expects sluggish growth in the second half of 2026 due to companies passing on higher energy costs to consumers.

The weak yen has also put pressure on Japanese consumers, with the currency hitting a 40-year low against the US dollar last month. This could complicate the Bank of Japan's decision on interest rates in September, as the central bank raised its benchmark rate to 1%, the highest level in over three decades.