Japan's real gross domestic product grew 1.1 per cent on an annualised basis in the three months through June, the Cabinet Office reported on Aug 17, missing economists' forecast for 2 per cent and marking a slowdown from the previous quarter's revised 1.9 per cent.

Capital investment fell 1.2 per cent, steeper than the prior period's 1 per cent drop, while private consumption came in flat, missing the consensus estimate for 0.4 per cent growth. The slowdown reflects uncertainties from the Middle East conflict, which has pushed up fuel and petroleum prices and disrupted supply chains, and a reluctance among consumers to spend amid rising living costs.

The weak domestic demand complicates policy decisions for the Bank of Japan as it weighs its next rate increase; traders were pricing in an 80 per cent likelihood of a rate hike when the BOJ decides policy on Sept 18. The slowdown will also concern Prime Minister Sanae Takaichi, whose approval ratings have dipped as consumers face persistent price increases, though she has announced subsidies on utility costs and plans to cut the sales tax on food to 1 per cent from April, The Straits Times reports.