Gross domestic product likely expanded at an annualised pace of 0.4% in the three months through June. — Bloomberg
TOKYO: Japan’s economy likely managed to avoid falling into a recession by posting modest growth in the second quarter, as domestic demand led by capital spending offset the drag from US tariffs, according to economists surveyed by Bloomberg.
Gross domestic product (GDP) likely expanded at an annualised pace of 0.4% in the three months through June compared with the prior period, when GDP (gross domestic product) contracted, according to the median estimate of economists.
Economists’ views varied widely ahead of the release, with four of 32 analysts surveyed having projected a contraction as five predicted growth of 1% or more.
The Cabinet Office is set to release the preliminary data today.
A modest expansion to avoid a technical recession would offer some reassurance to policymakers at a time when the economic outlook has dimmed.
Earlier this month the government slashed its growth projection for the current fiscal year to 0.7% from 1.2% partly to account for the expected impact from US tariffs on exports.
The data may keep the Bank of Japan (BoJ) on the path toward another rate hike this year if authorities are confident that domestic demand can stay resilient even as US trade policies continue to cause stress for global commerce.
Friday’s GDP data will be the first to reflect the impact of President Donald Trump’s across-the-board tariffs and auto levies, which took effect in April.
The initial 10% baseline tariff rate was raised to 15% from this month, while 25% levies on cars are set to fall to the same level.
Japan’s exports fell in value in both May and June, but not significantly in volume, as companies lowered selling prices.
Net exports are estimated to have contributed to growth overall, a reversal from the previous quarter, helped by slower growth in imports.
Also, spending by inbound tourists – a component of net exports – increased by 18% in the period, as the number of tourists arriving in the first half of 2025 reached a record high.
“It’s easy to think that the negative effects of Trump’s tariffs would have started showing up in exports between April and June, but that wasn’t really the case,” said Shinichiro Kobayashi, chief economist at Mitsubishi UFJ Research and Consulting.
“Exporters rushed to ship goods even with the 10% tariff in place, fearing it could soon climb to 25%,” he said.
Kobayashi, who had forecast 0.2% overall growth, said service exports fuelled by inbound tourism along with steady business investment helped drive the modest expansion.
Capital spending is forecast to show a rise of 0.7% in the period.
In the BoJ’s latest Tankan survey, large firms across various sectors said they intend to increase investment by 11.5% in the current fiscal year, an upward revision from a 3.1% forecast in the previous survey.
Businesses investing in software and urban redevelopment projects may have buoyed capital investment, according to Taro Kimura, economist at Bloomberg Economics.
Forecasts for private consumption range between down 0.1% and 0.3%, with the consensus estimate showing a 0.1% advance.
Household spending rose in both May and June, in a sign of resilience, though persistent inflation continues to weigh on consumer sentiment.
Bloomberg economist Taro Kimura said: “This picture would be consistent with the BoJ continuing to dial back stimulus, as it gains more clarity on the impact of US trade policy on growth.”
Voter frustration over soaring costs of living was a key factor setting the stage for Prime Minister Shigeru Ishiba’s ruling coalition to suffer a historic setback in an upper election last month. — Bloomberg
