Japan's economy expanded 1.1% in the second quarter on an annualized basis, missing expectations for 2% growth as softer domestic demand strong exports.
The figure compared to the 2.1% in the previous quarter.
This is the first full quarter to include the impact of the Iran war, which has brought energy prices higher for business and households.
Exports were the main driver of growth, with shipments from the country beating expectations forallthreemonthsof the quarter. However, this was helped by the weak yen as opposed to simply a higher volume of shipments.
Earlier this month, the Bank of Japan released its economic activity outlook, and raised its GDP growth outlook marginally to 0.6% from 0.5% for its 2026 fiscal year ending March 2027.
"Japan's economy is expected to continue growing moderately, albeit at a decelerated rate,"the central bank said, pointing at high crude oil prices from the conflict in the Middle East.
However, this is likely to be partially offset by measures from the government to curb high oil prices for households, as well as an increase in global AI-related demand. Many Japanese companies are involved in the semiconductor supply chain.
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