Japan's Q2 GDP Annual Growth at 1.1%, Below Expected 2%

Japan's GDP grew by 0.3% quarter-on-quarter in the second quarter, translating to an annualized growth rate of 1.1%, which is below the market expectation of 2% and the previous quarter's 2.1%. The growth this quarter was primarily driven by exports, which performed better than expected over the three months, becoming a major pillar of economic expansion. However, the improvement in exports was mainly supported by a weaker yen, with performance being more influenced by exchange rate boosts. Rising energy prices have put pressure on costs for businesses and households, dragging down domestic demand. The conflict in the Middle East has pushed up crude oil prices, leading to increased operational and living costs for businesses and residents, which has become an important backdrop for the economic slowdown. The Bank of Japan has slightly raised its GDP growth forecast for the fiscal year 2026, ending in March 2027, from 0.5% to 0.6%. The central bank stated that Japan's economy is expected to continue to grow moderately, but the pace of expansion will slow, with rising global demand related to AI potentially providing some support for the Japanese economy, particularly for companies in the semiconductor supply chain.