Japan’s economy expanded faster than expected in the first quarter, suggesting domestic demand and exports were holding up well before the escalation of the Middle East conflict began weighing on the global outlook. GDP growth accelerated from 0.3% qoq to 0.5% qoq, slightly above expectations of 0.4% qoq. Annualized growth jumped from 0.8% to 2.1%, comfortably beating the 1.7% consensus forecast.
Exports provided an important boost to growth, rising 1.7% qoq on recovering auto shipments to the US and strong overseas demand for industrial machinery and electrical devices. Imports edged up just 0.5%. Domestic demand also remained resilient. Private consumption, which accounts for more than half of Japan’s economy, rose 0.3% qoq for a fifth consecutive quarter, supported by solid spending on clothing and dining out. Business investment also increased 0.3% qoq.
A government official said the impact of the Middle East conflict and the U.S.-Israeli attacks on Iran that began in late February was still unclear in the GDP data. Still, the stronger-than-expected report suggests Japan entered the energy shock period with some underlying economic buffers already in place. That could help the economy absorb part of the near-term drag from rising oil prices, although persistent energy inflation may still complicate the Bank of Japan’s policy outlook in coming quarters.
| Indicator | Previous | Q1 2026 | Expectation |
|---|---|---|---|
| GDP Growth (qoq) | 0.3% | 0.5% | 0.4% |
| GDP Growth (annualized) | 0.8% | 2.1% | 1.7% |
| Exports (qoq) | — | 1.7% | — |
| Imports (qoq) | — | 0.5% | — |
| Private Consumption (qoq) | — | 0.3% | — |
| Business Investment (qoq) | — | 0.3% | — |
