Japan's Economy Unexpectedly Slows as Capital Spending Slips

What happened

Japan's real GDP grew 1.1% on an annualized basis in the second quarter, slower than the revised 1.9% in the previous quarter and below the 2% forecast. Capital investment fell 1.2% non-annually, and private consumption was flat, missing the 0.4% estimate. The slowdown complicates the Bank of Japan's policy communications, with an 80% likelihood of a rate hike on Sept 18.

Why it matters

The slowdown coincides with the Middle East conflict and rising energy costs, impacting Prime Minister Sanae Takaichi's approval ratings. Despite weak domestic demand, corporate data remains strong, and the government plans to cut the sales tax on food to 1% for two years starting April.