Japan’s economy grew 0.3% in the April-June quarter from the previous quarter, official figures showed on Monday, missing the 0.5% growth forecast by analysts. It was the third consecutive quarterly expansion, but slower than the 0.5% increase recorded in the previous quarter.
On an annualised basis, Japan’s GDP expanded 1.1%, below the 1.67% average forecast from a survey of 37 economists conducted by the Japan Center for Economic Research. Weak domestic activity offset the boost from exports.
Consumption and investment weigh on growth
Private consumption was flat in real terms during the quarter, while capital expenditure fell 1.2%, equivalent to a 4.6% decline on an annualised basis, according to data from Japan’s Cabinet Office.
Net exports contributed 0.5 percentage points to GDP growth, while domestic demand made a negative 0.2 percentage-point contribution.
Related coverage: US Economic Growth Slows to 1.5% in Q2 2026 Amid Inflation and Trade Pressures.
Energy costs add pressure to the outlook
Norihiro Yamaguchi, lead economist for Japan at Oxford Economics, expects sluggish growth in the second half of 2026 as companies pass higher energy costs on to consumers. He said AI-related goods exports were likely to remain robust in the near term, while weaker non-AI-related global activity could limit overall export gains.
Japan imports almost all of its crude oil, leaving consumers and businesses exposed to elevated energy costs linked to the fallout from the United States-Israel war on Iran. Cost pressures have also been intensified by the weaker yen, which hit a 40-year low against the US dollar last month.
What the figures mean for the Bank of Japan
The weaker-than-expected growth figures could complicate the Bank of Japan’s next interest-rate decision as it continues to normalise monetary policy after decades of ultra-low and negative borrowing costs.
The central bank raised its benchmark interest rate to 1% in June, its highest level in more than three decades. Its next policy meeting is scheduled for September 17-18. A September increase could support the yen by narrowing the borrowing-cost gap between Japan and other major economies, particularly the United States.
The Bank of Japan began moving away from its ultra-loose policy in 2024, when it announced its first rate increase since the 2008 global financial crisis.
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