Japan’s weaker-than-expected Q2 GDP growth fuels skepticism over the Bank of Japan’s ability to sustain rate hikes.
The Japanese Yen weakened against the US Dollar on Tuesday, with USD/JPY climbing 0.16% to 159.70 in European trading. Markets are questioning the Bank of Japan’s hawkish stance as economic data disappoints, pressuring the currency.
Japan’s economy grew just 0.3% quarter-over-quarter in Q2, below the 0.5% estimate and prior print. Annualized growth slowed to 1.1%, down from 1.8% previously. Economists highlight weak consumption and capital expenditure as key drags, offsetting a higher GDP deflator that may support near-term rate hike expectations.
Analysts warn that sustained weakness in services consumption could deter the BoJ from aggressive tightening. The sector’s performance is now a critical risk marker for policy decisions, with further softness potentially signaling slower or delayed rate increases.