Japan's Economy Slows Unexpectedly in Q2 on Weak Capital Spending

Japan's economy unexpectedly slowed in Q2, according to a Cabinet Office report. Real GDP grew 1.1% on an annualised basis, which is slower than the revised 1.9% pace in the previous quarter and fell short of economists' forecasts for 2% growth.

The decline was largely due to weak capital spending, which fell 1.2% on a non-annualised basis, missing estimates for 0.5% growth. Private consumption also came in flat, despite some government subsidies aimed at alleviating the impact of rising costs of living.

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

The BOJ is still likely to proceed with its rate hike path, despite the slower-than-expected growth. However, the decision may be complicated by the need to justify the move as driven by economic factors rather than a weak yen.