Japan Q2 GDP Miss; BoJ Policy in Focus

Japan’s Q2 GDP expanded 0.3% quarter-on-quarter (1.1% annualized), undershooting the ~0.5% forecast as private consumption was flat and capital spending fell about 1.2%, though one-off factors like tuition-free education and a pharmaceutical asset sale muddy the readings. Net exports provided the lone bright spot, aided by strong shipments of hybrid vehicles and AI-related equipment, while imports declined amid higher oil prices and a weaker yen. Industrial production rebounded 1.9% in June, offering a counterpoint to the softer domestic demand picture. The data cooled expectations for a near-term BoJ rate hike, though some analysts still see a September move contingent on ongoing inflation and energy-price dynamics. Markets noted the influence of Middle East tensions on oil prices, the weak yen, and potential drag on equities and inflation, suggesting a cautious path forward. Overall, while headline growth was weaker than expected, policymakers view some factors as transitory and see room for continued gradual tightening as inflation pressures re-emerge.