This photo taken on April 21, 2025, shows a customer walking past a display of instant ramen at a branch of Japanese discount retailer Don Quijote (also known overseas as Don Don Donki) in central Tokyo’s Shibuya district. (Photo by RICHARD A. BROOKS/AFP) (Photo by RICHARD A. BROOKS/AFP via Getty Images)
Richard A. Brooks | AFP | Getty Images
Japan’s economy expanded at an annualized rate of 1.1% in the second quarter, falling short of expectations for 2% growth as weak domestic demand offset strong exports.
This figure compared to 2.1% in the previous quarter.
On a year-on-year basis, the country’s economic growth rate increased by 0.7% from 0.5% in the first quarter.
This is the first quarter to include the impact of the Iran war, which has increased energy prices for businesses and households.
After the data was released, the Nikkei Stock Average rose 0.43%, and the benchmark 10-year Japanese government bond yield stood at 2.88%. The yen rose slightly against the dollar, trading at 159.1 yen.
Exports were the main driver of growth, with shipments from the country exceeding expectations in all three months of the quarter. However, this was not only due to an increase in shipments, but also due to the weaker yen.
Earlier this month, the Bank of Japan announced its economic activity outlook and slightly raised its GDP growth forecast for fiscal 2026 (until March 2027) from 0.5% to 0.6%.
Pointing to the soaring oil prices due to the Middle East conflict, the central bank stated, “Japan’s economy is expected to continue to grow moderately, although it will slow down.”
However, this is likely to be partially offset by government measures to curb household oil prices and increased global AI-related demand. Many Japanese companies are involved in the semiconductor supply chain.
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