Japan GDP growth slows to 0.3%, clouding BoJ hike

Japan's economy grew 0.3% in April-June, slowing from 0.5% in the previous three months, after capital expenditure fell and private consumption was flat, the Cabinet Office said on Monday.

On an annualised basis, gross domestic product expanded 1.1%, down from 1.9% in January-March. The quarterly and annualised figures were below forecasts in a Bloomberg survey, which had expected 0.5% quarterly growth and 2.0% annualised growth.

The reading comes as the Bank of Japan faces pressure over inflation and a weaker yen. Bloomberg Economics economist Taro Kimura said the figures “weaken the case” for a September interest-rate increase, which he said markets had increasingly priced in.

A Bank of Japan rate rise could lift the yen. The currency has given up around half of the gains that followed a joint market intervention by the United States and Japan last month.

Higher oil prices have increased Japan's import bill, while the weak yen has added to consumer price pressures. The weak yen can help large Japanese exporters, and Toyota cited it on August 4 when it raised its profit forecasts, but dollar-priced imports such as oil require more yen to buy.

Prime Minister Sanae Takaichi's government has widened support for voters after a large stimulus package in late 2025 and energy tax rebates. The government approved further aid earlier this year and last month said it would cut consumption tax on food products from 8% to 1% starting in April.

Media reports said the food-tax cut would cost the government 10 trillion yen, or $63 billion, in lost revenue over two years. Concerns about Japan's public finances, along with expectations of a Bank of Japan rate increase, pushed yields on 10-year Japanese government bonds to their highest level since 1996 on Monday.

Capital Economics economist Marcel Thieliant called the expansion “decent” and said limits on the pass-through from higher energy prices should keep growth that way in the second half of the year. He said a 5.4% annual rise in nominal government consumption was the largest since 2021 and suggested Takaichi's fiscal policies were starting to have an impact.

NLI Research Institute economist Taro Saito told AFP the figures were worse than expected and said both consumption and capital investment were weak. He said the growth was not due to a robust economy but partly to a decline in imports, citing difficulties with oil imports because of problems transiting the Strait of Hormuz.