Japan Economy Grows at Annualized 1.4% in Q2

Japan’s economy expanded at an annualized rate of 1.4% in Q2 2026, revised up from the preliminary reading and market estimates of 1.1%. It marked the third consecutive quarter of growth, supported by stronger government spending and a positive contribution from net trade, as exports increased while imports declined. Simultaneously, private consumption, which accounts for more than half of the economy, remained subdued amid persistent price pressures, exacerbated by higher energy costs linked to the Middle East conflict, and continued to weigh on household spending. Capital expenditure also remained weak, contributing negatively for the second consecutive quarter.

Japan’s economy expanded at an annualized rate of 1.1% in Q2 2026, easing from a marginally revised 1.9% growth in the previous quarter and missing market expectations of 2.0%, a preliminary reading showed. Private consumption, which accounts for more than half of economic output, made no contribution to GDP amid elevated cost pressures, in contrast to government spending, which picked up due to massive economic support measures. Meanwhile, the decline in capital spending deepened amid mounting geopolitical tensions. Net trade contributed positively, as exports increased while imports fell. Analysts warned that rising import costs and intensifying upstream price pressures could eventually pass through to households, weighing on consumer spending later in the year. Private consumption is also expected to soften in Q3, following a temporary boost in durable-goods demand, including autos and air conditioners, ahead of policy and regulatory changes in April-June.

Japan’s economy expanded at an annualized rate of 1.8% in Q1 2026, revised lower from the preliminary estimate of 2.1% but still exceeding market expectations of 1.3%. Growth also accelerated from a downwardly revised 0.7% increase in Q4, marking the strongest annualized rise in four quarters. Private consumption strengthened, while public investment rose for the first time in three quarters, supported by higher infrastructure and reconstruction-related spending. Government expenditure increased for a fourth consecutive quarter, although the pace slowed slightly from the prior period. Net trade also made a solid positive contribution to growth, driven by stronger exports. In contrast, business investment contracted after expanding in Q4, as elevated borrowing costs and softer corporate sentiment dampened firms' appetite for capital spending. Meanwhile, uncertainty surrounding the Middle East conflict may weigh on economic activity in the quarters ahead.