Japan's Slowing Growth Fuels Policy Divide Between Tokyo, Bank of Japan

Japan's economic growth has slowed down, with a quarterly increase of only 0.3% and an annual rate of 1.1%, falling short of expectations. This unexpected decline in growth has sparked a policy divide between the Bank of Japan and Tokyo on how to address rising inflation. The country's inflation rate rose from 1.4% in April to 1.7% in June, with predictions suggesting it could reach 1.9% in July.

Exports were the main driver of growth, but a weaker yen limited their contribution. Weak domestic demand and capital spending also weighed on the economy. The effects of the war in the Middle East have started to appear in Japan's economic data.

The combination of slower growth and rising inflation has complicated Japan's economic policy path. While the Bank of Japan plans to raise interest rates due to inflationary pressures, Tokyo favors further fiscal expansion in response to slowing growth. Asian markets analyst Sadi Kaymaz noted that Prime Minister Sanae Takaichi's falling approval ratings and the cost of living should also be considered when predicting the next steps.