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 for all three months of 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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China’s economy in the second quarter grew at its weakest pace since 2022, as an accelerating slide in investments deepened the strain on growth while consumption stayed subdued.

Gross domestic product growth came in at 4.3% in the April to June period, data from the National Statistics Bureau showed Wednesday, missing economists’ forecast for 4.5% growth in a Reuters poll, and slowing from 5% in the first quarter.

That second-quarter growth came below Beijing’s full-year growth target range of 4.5% to 5%, the least ambitious goal in decades, amid tensions with trade partners, including the U.S. and the European Union, and sluggish domestic demand.

Urban fixed-asset investment, including real estate development and infrastructure projects, declined 5.7% in the first six months from a year earlier, worse than expectations for a 4.9% drop in a Reuters poll, and steepening from a 4.1% contraction in the first five months.

In June, China’s retail sales grew 1%, rebounding from a 0.6% drop in the prior month and exceeding economists’ forecast for a 0.1% fall. Retail sales in May posted their first monthly decline since late 2022, dragged down by tepid demand and merchants’ steep discounting.

Industrial output expanded 5.3% in June from a year ago, stronger than the forecast 4.7% growth, and gaining pace from 4.5% expansion in May.

Chinese economy has grappled with a deepening supply-demand imbalance. Robust industrial production and exports tied to the global AI investment boom continue to power headline growth, even as consumption and private investment weakens amid a prolonged property downturn and volatile energy prices.

Urban investment slumped for the first time in decades last year, falling 3.8% from a year earlier, as a prolonged property downturn and tighter constraints on local governments’ borrowing have hampered one of China’s traditional growth drivers.

Chinese urban unemployment stood at 5% in June. The leadership is targeting an unemployment rate of less than 5.5% over the next five-year period.

The slowdown in headline growth is unlikely to trigger a meaningful shift in Beijing’s policy stance in the coming months, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, as the strong first quarter and resilient exports keep the economy on track for the government’s annual growth target.

— CNBC’s Evelyn Cheng contributed to the report.