Japan’s latest data reveal a fragile recovery, with households and businesses holding back while exports shielded growth from a sharper slowdown.
Japan’s economy grew more slowly than the market expected in April–June 2026. Domestic demand was weighed down by higher commodity prices and supply disruptions linked to the war in the Middle East.
On an annualized basis, the country’s gross domestic product increased by 1.1%. This was below the median market forecast of 2.0% growth. In the previous quarter, Japan’s economy expanded by 1.9%, according to revised data.
On a quarterly basis, Japan’s GDP grew by 0.3%, compared with expectations of 0.5%. Despite the weaker result, the country’s economy continued to expand for the third consecutive quarter.
Consumption and investment fell short of forecasts
Private consumption, which accounts for more than half of Japan’s economic output, was unchanged in the second quarter. Analysts had expected it to rise by 0.5%.
Trends in household spending and wages are important for the Bank of Japan when assessing the state of the economy and the need for further interest rate hikes.
Capital expenditure, which remains one of the key drivers of private demand, declined by 1.2%. The market forecast had called for growth of 0.4%.
Exports supported Japan’s GDP growth
Net external demand – the difference between exports and imports – added 0.5 percentage points to GDP growth.
Japanese exports remained relatively resilient thanks to steady demand in the United States for Japanese hybrid vehicles. Shipments of equipment and components related to semiconductor production were also supported by global investment in artificial intelligence.
Risks to the economy in the second half of the year
Further increases in import prices and stronger price pressures at the early stages of production could eventually affect the cost of goods for consumers. This creates a risk of weaker household spending toward the end of the year.
In July–September, private consumption may also decline following a temporary increase in demand for durable goods in the second quarter. In particular, changes in policy and regulation affected sales of cars and air conditioners.
A survey by the Japan Center for Economic Research conducted this month showed that 37 economists expect Japan’s annualized GDP growth in July–September to slow to an average of 0.05%.