Overview
- The Cabinet Office’s preliminary Q2 GDP, released Aug. 17, showed real output rose 0.3% quarter-on-quarter (an annualised 1.1%), well below market forecasts and extending a three-quarter growth streak.
- Domestic demand was the drag as private consumption was flat and business investment fell 1.2% quarter-on-quarter, a drop that signals households and firms pulled back on spending.
- Exports and weaker imports offset the shortfall, adding 0.5 percentage point to growth thanks to strong U.S. demand for hybrid cars and sustained global investment in AI-related semiconductor equipment.
- Inflation remained elevated: the GDP deflator rose 2.6% year-on-year, a broad measure of price pressure that leaves the BOJ facing a trade-off between weak activity and persistent inflation.
- The soft domestic print heightens uncertainty over BOJ policy timing, could temper near-term tightening bets, and has left currency moves more influenced by shifting U.S. Fed expectations than by Japan’s data; the preliminary figure may also be revised and contains one-off accounting items that partly distorted capex and consumption readings.