Japan's Economy Grows 1.1% in Q2 Despite Flat Spending, Slower Exports

Japan's economy expanded at an annualized rate of 1.1% in the April-June quarter, according to Cabinet Office data released Monday. The figure marks a slowdown from the 2.1% annualized growth recorded in the January-March period.

On a seasonally adjusted basis, real gross domestic product — the total value of goods and services produced — grew 0.3% quarter-on-quarter. The annualized rate reflects what that growth would look like if sustained over a full year.

Private consumption, which accounts for more than half of Japan's economy, remained essentially flat during the quarter, dipping 1.2% compared with the previous three months. Government consumption rose 1.6%, providing some support to overall output.

Exports grew 0.5% in the quarter, driven by global demand for Japanese automobiles and semiconductors. Toyota Motor Corp., Honda Motor Co. and other major automakers benefited from overseas orders, while interest in artificial intelligence has boosted demand for computer chips.

The growth figure came in below analyst expectations. Japan's economy continues to face headwinds from the war in Iran, which has disrupted oil shipments through the Strait of Hormuz — a critical route for Persian Gulf crude bound for Asia. Japan imports nearly all of its oil, making it especially vulnerable to supply disruptions. The government has released some oil reserves and is exploring alternative shipping routes.

Brent crude has been trading near $88 a barrel, up from about $65 a year ago, though below the $110-plus levels seen earlier this year. Higher energy costs have pushed up prices for consumers, while a weak yen has had mixed effects. Exporters such as Toyota benefit from the currency's decline, as overseas earnings translate into more yen. However, the weaker currency also raises the cost of imported raw materials, squeezing household budgets.

The U.S. dollar has been trading near 160 yen, up from about 145 yen a year ago. It stood at roughly 159 yen following Monday's data release.

Wage growth has remained relatively stagnant, adding to concerns about rising prices. Prime Minister Sanae Takaichi has pledged to revive growth, though her public approval ratings have been gradually declining, even as they remain higher than some of her predecessors.

The Bank of Japan recently revised its economic growth forecast for the fiscal year ending March next year to 0.6%, up from an earlier projection of 0.5%.