Japan’s economy expanded at an annual pace of 1.0% during the second quarter, significantly exceeding forecasts, as resilient exports weathered new US tariffs, according to Reuters.
Government data released on Friday confirmed a fifth consecutive quarter of expansion, revising the previous quarter’s contraction to a 0.6% gain.
The stronger-than-anticipated growth was driven by surprisingly resilient exports and capital expenditure, surpassing the median market expectation of a 0.4% increase found in a Reuters poll.
This translates to a quarterly rise of 0.3%, outperforming the median estimate of a 0.1% uptick. The positive figures stand in contrast to China, where July saw factory output growth hit eight-month low and retail sales slow sharply.
Private consumption, accounting for over half of Japan’s economic output, rose 0.2%, matching its previous quarter’s pace and slightly exceeding market estimates of a 0.1% increase. Consumption and wage trends remain key factors the Bank of Japan is monitoring to gauge economic strength and determine the timing of future interest rate adjustments.
Capital spending, a crucial driver of domestic demand, showed significant strength, rising 1.3% in the second quarter compared to a predicted 0.5% rise. Net external demand contributed 0.3 percentage points to growth, a notable improvement from the negative 0.8 percentage point contribution recorded in the January-March period.
Automakers face particular pressure to maintain prices for American customers following the imposition of 25% tariffs on automobiles and auto parts in April, alongside threatened levies on most other Japanese imports. A subsequent July trade deal lowered auto tariffs to 15% in exchange for a $550 billion Japanese investment package directed towards the US.
Japanese Economy Minister Ryosei Akazawa confirmed at a press conference that the GDP results indicated the economy was “recovering modestly.”
“Looking ahead, we expect better employment and income conditions and policy measures to support the modest recovery. But we need to be mindful of downside risks from US trade policies,” Akazawa added.
