Japan Q3 GDP Shrinks More than Initially Anticipated

Japan’s GDP grew 0.3% quarter-on-quarter in Q2 2026, slowing from Q1’s pace and falling short of market expectations for 0.5%, flash data showed. Domestic demand subtracted 0.2 percentage points from growth, as private consumption was flat (vs 0.3% in Q1), missing estimates for a 0.5% increase amid persistent cost pressures. Capital expenditure fell further (-1.2% vs -1.0%), reflecting weaker business sentiment and heightened uncertainty over the economic outlook, against forecasts for a 0.4% gain. Meanwhile, external demand contributed 0.5 percentage points to growth, cushioning the slowdown as exports rose 0.5% while imports fell 1.5%, reversing a 0.3% increase in Q1. Economists caution that growth may soften in Q3 as Middle East war-related price pressures further squeeze household finances and corporate budgets.

Japan’s GDP grew 0.5% qoq in Q1 2026, matching flash data and accelerating from a 0.2% gain in Q4. The latest result was also above market estimates of 0.3%, marking the strongest quarterly increase since Q1 2025. Private consumption picked up (0.3% vs 0.1% in Q4, in line with an earlier estimate), reflecting easing cost pressures and steady wage growth. Public investment rose for the first time in three quarters (1.5% vs 1.4% in flash figures, after a 0.1% drop in Q4), boosted by solid infrastructure spending. Net trade added positively, with exports quickening (1.8% vs 1.7% in flash data, after a 0.2% rise in Q4) on strong overseas demand for autos, and imports rising 0.4% (compared with 0.5% in flash data, after a flat reading in Q4). Government spending growth was little changed (0.3% vs 0.4% in Q4), while business investment was revised downward (-0.7% vs preliminary reading of a 0.3% rise, after a 1.2% gain in Q4), due to higher interest rates and softer corporate sentiment.

Japan’s GDP grew 0.5% qoq in Q1 2026, accelerating from a downwardly revised 0.2% increase in Q4 and topping market forecasts of 0.4%, flash data showed. It was the strongest quarterly expansion since Q3 2024, amid a pickup in private consumption (0.3% vs flat reading in Q4), reflecting easing inflation pressures and steady wage growth. Public investment also rose for the first time in three quarters (1.4% vs -0.2%), helped by higher infrastructure spending. Net trade added positively, with exports accelerating sharply (1.7% vs 0.2%) on stronger overseas demand for autos and tech products, while imports rose at a much slower 0.5% (vs flat reading). Simultaneously, government spending growth was muted (0.1% vs 0.4%), and business investment increased more slowly (0.3% vs 1.4%), linked to elevated interest rates and softer corporate sentiment. Looking ahead, growth may remain subdued for the rest of the year as the Middle East conflict clouds the future path.