Japan's GDP Surges 1.2% Year-on-Year, Driven by Strong Domestic Demand

Japan's economy demonstrated remarkable resilience in the second quarter, with GDP growth surpassing market expectations. The Cabinet Office reported that the GDP for the April to June period grew by 1.2% year-on-year, significantly higher than the 0.6% growth recorded in the previous quarter and the market's forecast of 0.4%. On a quarterly basis, GDP grew by 1.0%, far exceeding the predicted 0.4%. This robust performance was primarily driven by strong domestic demand, with corporate investment and private consumption playing crucial roles.

Corporate investment grew by 1.3% on a quarterly basis, surpassing the expected 0.7%. This steady growth in investment was observed despite uncertainties arising from U.S. tariffs. Private consumption, which accounts for nearly 60% of the economy, also saw a modest increase of 0.2%. This growth was supported by stable wage increases, with large enterprises in Japan committing to wage hikes exceeding 5%, outpacing inflation rates. Economists predict that real wages will start to rise in the autumn, further boosting household consumption.

External demand also contributed positively to the second quarter's economic growth, adding 0.3 percentage points. Despite facing higher tariff barriers, Japan's actual exports increased by 2%. Some companies maintained market share by lowering sales prices, while others expedited shipments ahead of potential tariff hikes. Additionally, a surge in inbound tourism supported net exports, with foreign tourist spending in Japan increasing by 18% and reaching a record high in the first half of the year.

This strong GDP performance provides a solid foundation for the Bank of Japan to consider further monetary policy adjustments. The data indicates that the Japanese economy can withstand external pressures, such as U.S. tariffs, thanks to robust domestic demand. The government's efforts to stimulate domestic consumption and corporate investment have yielded positive results, contributing to overall economic growth. The revision of the first quarter's GDP data from a contraction to a 0.6% growth further underscores the economy's resilience and steady recovery from the previous slowdown.

The second quarter's GDP growth of 1.2% year-on-year and 1.0% quarter-on-quarter highlights the strength of the Japanese economy. The data reflects the successful implementation of policies aimed at stimulating domestic demand and corporate investment. The robust performance in the second quarter provides a strong basis for the Bank of Japan to consider further monetary policy adjustments, potentially leading to an increase in interest rates. The economy's ability to withstand external pressures demonstrates its resilience and adaptability in the face of global challenges.