Japan’s economy expands faster than expected in Q2
[TOKYO] Japan’s economy grew much faster than expected in the second quarter, helped by a rush of exports ahead of US tariffs taking effect, giving the central bank some of the conditions it needs to resume interest rate hikes this year.
Gross domestic product (GDP) rose 1.0 per cent on an annualised basis, government data showed on Friday, marking the fifth straight quarter of expansion after the previous quarter’s contraction was revised to growth.
However, analysts warn global economic uncertainties fuelled by US tariffs could weigh on the world’s fourth-largest economy in the coming months.
“The April-June data masked the real effect of Trump’s tariffs,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. “Exports were strong thanks to solid car shipment volumes and last-minute demand from Asian manufacturers ahead of tariffs. But these aren’t sustainable at all.”
The increase in GDP was helped by surprisingly resilient exports and capital expenditure and compared with median market expectations for a 0.4 per cent gain in a Reuters poll. It followed a 0.6 per cent rise in the previous quarter, which was revised from a 0.2 per cent contraction.
The reading translates into a quarterly rise of 0.3 per cent, better than the median estimate of a 0.1 per cent uptick.
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Private consumption, which accounts for more than half of economic output, rose 0.2 per cent compared with a market estimate of a 0.1 per cent increase. It grew at the same pace as the previous quarter.
Consumption and wage trends are key factors the Bank of Japan is watching to gauge economic strength and determine the timing of its next interest rate action.
Capital spending, a key driver of domestic demand, rose 1.3 per cent in the second quarter, versus a rise of 0.5 per cent in the Reuters poll.
Net external demand, or exports minus imports, contributed 0.3 of a point to growth, versus an 0.8 point negative contribution in the January-March period.
The government last week cut its inflation-adjusted growth forecast for this fiscal year to 0.7 per cent from the initially projected 1.2 per cent, predicting US tariffs would slow capital expenditure while persistent inflation weighs on consumption.
Exports have so far avoided a major hit from US tariffs as Japanese automakers, the country’s biggest exporters, have mostly absorbed additional tariff costs by cutting prices in a bid to keep domestic plants running.
The economic resilience, along with a US-Japan trade deal struck last month, supports views the BOJ could hike interest rate later this year.
However, economists expect exports will suffer in the coming months as they start passing on costs to US customers.
“It’s possible the economy could slip into decline in the July-September quarter as exports slow,” Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, said.
“For the economy to fully pick up, private consumption holds the key. Consumption could improve towards the end of the year as inflation gradually slows and sentiment recovers,” he said. REUTERS
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