Japan's economy grew by 1.1 percent on an annualized basis during the second quarter. This result fell short of market expectations, which had projected 2 percent growth for the period. Economic activity increased by 0.3 percent compared to the first quarter, while year-on-year growth reached 0.7 percent.
Export performance acted as the primary driver for this growth. However, experts note that these export figures were inflated by the weakness of the yen rather than a substantial increase in the volume of goods shipped. Domestic demand remained soft during the quarter, preventing a stronger economic expansion.
This quarter represents the first full period affected by the war in Iran. The conflict has introduced higher energy costs for both households and businesses, placing downward pressure on the broader economy. The central bank highlighted that these geopolitical factors remain a challenge for steady growth.
Government initiatives are in place to help curb the impact of rising oil prices on consumers. Meanwhile, the global demand for artificial intelligence technologies provides a potential tailwind, as many domestic firms hold critical positions in the semiconductor supply chain. Despite the miss in GDP projections, the Bank of Japan maintains its outlook for moderate growth through the end of the fiscal year in March 2027.