The economy of Japan continued to expand in the second quarter, but at a slower rate than expected by the market. Data show that GDP grew by 0.3 per cent in the current season, and the equivalent annual rate increased by 1.1 per cent, down from 2 per cent expected, and down from 2.1 per cent in the previous quarter.
The export is still the main support.
This quarter ' s growth is largely export-led. Japan ' s export performance was better than expected during the three months of the quarter and became a major pillar of economic expansion.
However, the improvement in exports was not entirely due to a significant increase in the volume of deliveries. It was reported that the weak yen had led to greater support for exports, which meant that the performance was more influenced by the exchange rate.
- Second quarter GDP, ring growth, 0.3%
- 1.1 per cent increase in the equivalent annual rate
- Market is expected to grow by 2%
Energy prices drag on domestic demand
This is also the first quarter to fully reflect the effects of the war in Iran. Rising energy prices put pressure on business and household costs, slowing domestic demand performance.
Compared to exports, domestic demand in Japan is weak. After the Middle East conflict pushed up the price of crude oil, business operations and the cost of living for the population rose, which was an important backdrop for the economic slowdown this quarter.
The Central Bank of Japan slightly raised expectations
When the Bank of Japan released its economic activity outlook earlier this month, it increased its GDP growth from 0.5 per cent to 0.6 per cent as of March 2026.
According to the Central Bank, the Japanese economy is expected to continue to grow modestly, but expansion will slow. At the same time, the rise in global AI-related demand may provide part of the support for the Japanese economy, especially for semiconductor-related supply chain-related enterprises.