Japan’s economy expanded at an annualized rate of 1.1% in the April-June quarter of 2026, supported by exports despite stagnant consumer spending and slower trade growth, according to government data released Monday.
Real gross domestic product (GDP) increased 0.3% from the first quarter to the second quarter on a seasonally adjusted basis, according to Japan’s Cabinet Office. The annualized growth rate compares with 2.1% growth recorded in the January-March period.
Exports support growth as consumption remains weak
Private consumption, a key driver of Japan’s economy, declined 1.2% during the quarter compared with the previous three-month period. Meanwhile, exports increased 0.5%, supported by international demand for Japanese automobiles and semiconductor-related products.
Demand for computer chips linked to artificial intelligence development has helped strengthen Japan’s export sector, benefiting major manufacturers including Toyota and Honda.
Government consumption provided additional support, rising 1.6% during the quarter.
Energy costs weigh on Japan’s economic outlook
The quarterly GDP growth rate was below analyst expectations, with Japan continuing to face pressure from higher energy costs linked to the conflict in Iran.
As a resource-dependent economy, Japan imports nearly all of its oil, making it particularly vulnerable to energy price increases. The effective disruption of shipping through the Strait of Hormuz has pushed global oil prices higher, forcing Japan to release oil reserves and explore alternative supply routes.
Brent crude has recently traded near $88 per barrel, compared with around $65 a year earlier, although prices remain below their peak earlier in the year when they exceeded $110 per barrel.
Weak yen creates mixed impact for businesses
The weaker Japanese yen has benefited some major exporters by increasing the value of overseas earnings when converted back into yen. Companies such as Toyota have benefited from this currency effect.
However, the weak yen has also increased the cost of imported raw materials, contributing to higher consumer prices and putting pressure on household spending.
Rising prices remain a concern as wage growth in Japan has remained relatively limited, reducing consumers’ purchasing power.
Government faces challenge to revive growth
Prime Minister Sanae Takaichi has pledged to strengthen economic growth, although public approval ratings have gradually declined despite remaining relatively high compared with some previous administrations.
The U.S. dollar has recently traded near 160 Japanese yen, compared with around 145 yen a year earlier. Following the release of the GDP data, the exchange rate stood near 159 yen per dollar.
The Bank of Japan has slightly improved its economic outlook, raising its growth forecast to 0.6% for the fiscal year ending March 2027, up from its previous estimate of 0.5%.
