Kathmandu— Japan’s economy experienced a slowdown in the second quarter of this year, with gross domestic product (GDP) increasing by only 0.3 percent from the first quarter, according to data released Monday by Japan’s Cabinet Office. While marking a third consecutive expansion, the growth rate fell short of both previous quarterly gains and analysts' expectations of 0.5 percent. The annualised growth rate reached 1.1 percent, also below the forecasted 1.67 percent.

Weak Domestic Demand

Private consumption remained flat in real terms during the April-June period, while capital expenditures decreased by 1.2 percent—or 4.6 percent on an annualised basis. This decline offset gains made through strong exports, resulting in domestic demand contributing a negative 0.2 percentage points to overall GDP growth. Net exports provided a positive contribution of 0.5 percentage points.

Economic Headwinds

Economists anticipate continued sluggishness for the remainder of 2024 as rising energy costs are passed on to consumers. Norihiro Yamaguchi, lead economist for Japan at Oxford Economics, noted that while exports related to artificial intelligence will remain robust, broader global economic conditions will limit overall export gains. The country’s reliance on imported crude oil and a weakening yen—which recently hit a 40-year low against the US dollar—have further exacerbated cost pressures.

Implications for Monetary Policy

The weaker-than-expected growth figures may complicate the Bank of Japan's (BOJ’s) upcoming decision on interest rates in September. The BOJ has been working to normalise monetary policy after decades of ultra-low and negative borrowing costs, raising its benchmark rate to 1 percent in June—the highest level in over three decades. This move marked the first rate hike since the 2008 global financial crisis.

Japan’s stock market rose modestly on Monday despite the economic data, with the Nikkei 225 up 0.3 percent as of 05:15 GMT; South Korea and Hong Kong markets also saw gains.

(With inputs from Al Jazeera)

Originally published on abcnews.com.np.