Japan's Q2 GDP growth falls short of expectations, complicating the rate hike process and potentially putting pressure on the yen

(1) Japan's preliminary GDP growth rate for Q2 is 0.3%, with the annualized quarterly rate at 1.1%, both falling short of market expectations of 0.5% and 2%. Economic growth has noticeably slowed down. (2) Private consumption remained flat, and capital expenditure contracted sharply, indicating that the private sector is still cautious about spending. This may prompt the Bank of Japan to adopt a more prudent policy stance at its next meeting, although persistently high PPI and CPI continue to place pressure on policymakers to raise interest rates. (3) Weak economic growth could put the yen under a new round of depreciation pressure, especially if the market lowers its expectations for a rate hike in September. At the same time, government bond yields may fall as expectations for tightening ease. Although external demand has partially offset weak domestic demand, the overall economic situation remains modest and unlikely to support a swift policy tightening by the central bank on its own.