Japan’s economy expanded by an annualized 1.0% in the second quarter of 2025, surpassing the forecasted 0.4% increase, despite facing steep tariffs from the United States.
Why it matters: The stronger-than-expected growth highlights Japan’s economic resilience in the face of an uncertain global trade environment and provides a boost to the case for the Bank of Japan (BOJ) to raise its benchmark rate again this year.
The details:
- Net exports added 0.3 percentage points to GDP growth, a significant improvement from the 1.8% contraction in the first quarter.
- Business investment rose 1.3% from the previous quarter, surpassing the consensus estimate of 0.7% growth.
- Private consumption nudged 0.2% higher, showing resilience despite prolonged inflation.
- Exports held up in real terms, rising 2% from the prior period as companies cut selling prices to preserve market share.
The reaction: The positive GDP news saw Japan’s benchmark stock index rise by 0.59%, and the yen edged up 0.1% to trade at 147.6 against the dollar.
The challenges: Economists remain cautious about the outlook due to potential adverse impacts from intensifying tariffs and persistent inflation.
- “The key here is exports,” said Atsushi Takeda, chief economist at Itochu Research Institute. “The most important thing for the BOJ is to assess how exports trend from July onward.”
- Senior economist Masato Koike at Sompo Institute Plus highlighted a “strong sense of stagnation” for Japan’s economy, noting that the impact of tariffs on bonuses and wage increases could stifle progress in 2026.
What’s next: The BOJ is expected to hold steady when it next sets policy on Sept. 19, but some 42% of economists surveyed anticipate a move in October. Governor Kazuo Ueda said last month that authorities will keep raising borrowing costs if they’re confident domestic demand can stay steady.
