Residential and commercial properties near the Shibuya district of Tokyo on May 4, 2023.
Richard A. Brooks | Afp | Getty Images
Japan’s economy grew at an annualized 2.1% in the first quarter of 2026, surpassing analysts’ expectations, on the back of improved consumption and strong exports.
The growth was sharply higher compared with Reuters-polled analysts’ average estimate of 1.7%, and against the 1.3% in the previous quarter.
On a quarter-on-quarter basis, the economy expanded 0.5%, government data released Tuesday showed, compared with estimates of 0.4%, and improving from the 0.3% growth at the end of 2025. GDP expanded 0.6%, year on year.
These figures do not capture the full impact of the Iran war, which started at the end of February.
“Though Japan’s GDP grew healthily by 0.5% in Q1, we think the Q1 GDP is already in the rear-view mirror and expect the economy to feel the strains from high energy costs ahead,” Norihiro Yamaguchi, lead Japan economist at Oxford Economics, told CNBC.
Japan’s exports grew by a better-than-expected 11.5% year on year in March, partly powered by a 29.3% jump in shipments of semiconductor equipment.
Yamaguchi said that while gains in exports due to robust IT demand could provide some short-term support, higher energy prices as well as elevated uncertainty will start to limit consumption and investment.
The Bank of Japan has cut its growth forecast for the fiscal year 2026 to 0.5% from 1%, and sharply raised its core inflation outlook to 2.8% from 1.9%.
At its last meeting on May 7, the bank warned that Japan’s economic growth was likely to decelerate this year, as the increase in crude oil prices due to the the Middle East crisis is expected to crimp corporate profits and real household incomes.
Inflation in Japan also accelerated in March for the first time in five months.
“The rise in crude oil prices is expected to push up prices, mainly of energy and goods, with moves to pass on wage increases to selling prices continuing,” the BOJ said.
On Monday, Reuters reported that Tokyo was likely to issue fresh debt for an extra budget so as to cushion the economic blow from the Middle East war as the country subsidizes energy bills.
