Japan’s economy loses some steam in the second quarter

Japan’s economic growth in the April-June quarter fell short of analyst forecasts, with weak consumer spending and a drop in corporate investment dragging the number down.

Government data on Monday showed that the country’s real gross domestic product grew 0.3% from the previous quarter, for an annualized rate of 1.1%.

Analysts polled by Reuters had projected that the annualized number would be about 2%, while in the first quarter, the economy grew 1.9%.

The surprise result could affect the rate outlook and ultimately the yen, as the growth figure might influence the Bank of Japan’s view on the strength of the economy.

Japan’s currency traded little changed on Monday, at about ¥159 to the dollar, and some analysts put a positive spin on the GDP data, noting that the economy has grown for three consecutive quarters.

“There were views that Japan’s economy might even slip into negative growth due to higher import prices and supply constraints driven by the aggravated Iran situation,” Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, wrote in a report on Monday.

“Considering that, maintaining positive growth in the April-June quarter is encouraging.”

Private consumption, which accounts for more than half of Japan’s GDP, remained flat and contracted at an annualized rate of 0.1%. Higher tobacco prices were cited as one of the reasons.

A number of analysts were optimistic about private consumption, as Japan’s real wages have been increasing over the past six months. The market estimate was for a 0.5% increase.

Real capital expenditure fell 1.2% from the previous quarter compared with a market forecast for a 0.4% increase. This is the second consecutive quarterly decline.

Exports grew 0.5%, down from 1.7% growth in the previous quarter.

A 1.5% decrease in imports, partly reflecting a drop in oil shipments, technically boosted GDP due to a statistical anomaly.

Analysts are split on the July-September quarter.

Shinke expects that the Japanese economy will continue to expand.

“Risks of supply constraints, which were a major concern in the spring, have significantly receded,” he said in the report.

Japan has tapped oil reserves and diversified supply to reduce reliance on oil from the Middle East.

It’s unlikely that downward pressure on private consumption will rapidly intensify, as wages are increasing and the government is providing subsidies for utility costs, Shinke said.

Other analysts caution that the effects of the Iran conflict could intensify in the July-September quarter, potentially dragging the economy into contraction.