Japan's Cabinet Office released preliminary data showing that the country's real gross domestic product grew at an annualized rate of just 1.1% quarter-on-quarter in the second quarter of this year. This performance not only fell significantly short of the 2.0% growth widely forecast by financial institutions, but also marked a sharp decline from the revised 1.9% growth in the previous quarter, highlighting the structural challenges currently facing Japan's economic recovery.
From the perspective of the internal economic structure, private consumption, which accounts for half of Japan's economy, stagnated during the quarter. The flat quarter-on-quarter performance failed to meet market expectations of a 0.4% increase. Under the heavy burden of the rising cost of living driven by continuous price hikes, Japanese consumers have tightened their belts, significantly suppressing their willingness to spend. Meanwhile, corporate capital expenditure also showed hesitation, declining 1.2% quarter-on-quarter, in stark contrast to the expected 0.5% positive growth. This reflects the high caution of enterprises in expanding investments in the face of an unclear economic outlook. Overall, weak domestic demand dragged down the overall economic growth for the quarter by 0.2 percentage points.
In sharp contrast to the weak domestic demand, external demand has become a key force supporting the operation of the Japanese economy. Net exports performed outstandingly during the quarter, contributing 0.5 percentage points to economic growth, exceeding the market expectation of 0.3 percentage points. This was mainly driven by strong demand for hybrid vehicles in the U.S. market and the global boom in artificial intelligence investment, which strongly boosted Japan's exports of semiconductor equipment.
The disappointing macroeconomic data has directly affected the market's judgment on the direction of Japan's monetary policy. Analysts generally believe that the dual cooling of consumption and investment will significantly increase the difficulty for the Bank of Japan in formulating monetary policy, prompting policymakers to face greater resistance when weighing the subsequent path of interest rate hikes. The market even expects that the central bank may choose to hold rates steady at the upcoming policy meeting. As the effects of previous consumption stimulus policies gradually fade, household consumption in the third quarter is highly likely to decline. Research institutions predict that the annualized growth rate of Japan's economy in the third quarter may further narrow to 0.05%.
