TOKYO, Japan — Japan’s economy grew at an annualized rate of 1.1% in the second quarter, falling short of expectations for 2% growth as weaker domestic demand offset stronger exports, according to data released Monday.
- Japan’s second-quarter GDP expanded 1.1% annualized, below the 2% market expectation.
- Growth slowed from 2.1% annualized in the previous quarter.
- On a year-on-year basis, the economy grew 0.7%, compared with 0.5% in the first quarter.
- Exports supported growth, while softer domestic demand weighed on the overall expansion.
Japan GDP growth misses second-quarter expectations
The latest figures show that Japan’s economic expansion lost momentum compared with the first quarter. The 1.1% annualized growth rate was significantly below the 2% pace economists had expected.
On a year-on-year basis, however, the economy posted a stronger performance, expanding 0.7% after growing 0.5% during the first quarter.
Exports were the primary contributor to quarterly growth. Japanese shipments exceeded expectations during each of the three months in the quarter, although the weaker yen played an important role in supporting export performance.
Domestic demand weighs on Japan GDP growth
While exports provided support, softer domestic demand limited the overall pace of expansion. The figures highlight the challenge facing Japan as households and businesses continue to deal with higher energy costs.
The second quarter was also the first full quarter to capture the economic impact of the Iran war, which has pushed energy prices higher for households and businesses.
Bank of Japan raises growth forecast
The latest GDP figures come after the Bank of Japan earlier this month marginally raised its economic growth outlook for the fiscal year ending March 2027.
The central bank now expects the economy to grow 0.6% during the fiscal year, compared with its previous forecast of 0.5%.
“Japan’s economy is expected to continue growing moderately, albeit at a decelerated rate.”
The Bank of Japan pointed to elevated crude oil prices resulting from the conflict in the Middle East as one factor that could weigh on economic activity.
Oil prices and AI demand remain key factors
Government measures aimed at limiting the impact of high oil prices on households could partly cushion the pressure on consumers, according to the central bank’s outlook.
At the same time, rising global demand linked to artificial intelligence could provide additional support. Japanese companies have significant involvement in the semiconductor supply chain, giving the country exposure to growth in AI-related technology demand.
Markets react after GDP data
Japanese financial markets showed a modest response following the GDP release. The Nikkei 225 rose 0.43%, while the benchmark 10-year Japanese government bond yield stood at 2.88%.
The yen also strengthened slightly against the U.S. dollar, trading at around 159.1 to the dollar.
Frequently Asked Questions
Why did Japan’s GDP growth miss expectations?
Japan’s economy grew 1.1% on an annualized basis in the second quarter, below the expected 2% rate. Softer domestic demand offset the contribution from stronger exports.
What is the Bank of Japan’s latest growth forecast?
The Bank of Japan raised its growth forecast for the fiscal year ending March 2027 to 0.6% from 0.5% previously.
Source attribution: Supplied source material citing Japan’s GDP data, Bank of Japan outlook and market movements.
