Japan's economy expanded an annualized 1.1% in April-June, or 0.3% from the previous quarter, missing expectations as exports remained the main support while domestic demand and capital spending stayed weak. The softer growth print has narrowed the Bank of Japan's room to keep tightening policy even as inflation continues to rise, complicating the outlook for policymakers. Inflation climbed from 1.4% in April to 1.5% in May and 1.7% in June, with July seen at 1.9%. That mix of slowing growth and rising prices has deepened a policy split between the Bank of Japan, which plans to raise interest rates in response to inflation pressures, and Tokyo, which favors additional fiscal expansion to support the economy. Asian markets analyst Sadi Kaymaz said the data may have dented the central bank's confidence in growth and wages, though he said it is too early to talk about recession or disinflation. He said Japanese inflation is largely supply-driven, with import costs for raw materials and intermediate goods still under pressure, while continuing wage gains and real wages remain important for achieving sustainable inflation. Kaymaz also said Japan's strong semiconductor sector and AI-related investment remain important to watch, warning that a sharp pullback in AI spending could raise recession risks.