Japan's economy grows 2.2% in Q2
What's the story
Japan's economy expanded at an annualized rate of 2.2% in the second quarter of this year, a revised government report confirmed on Monday. The growth rate was higher than the initial estimate of 1.0% and surpassed analysts' median forecast, which had predicted no change from the preliminary reading. The upward revision was mainly due to stronger-than-expected private consumption data during this period.
Growth streak
Consumer spending shows signs of momentum
Japan's economy has now grown for five straight quarters, despite the challenges of persistent inflation and higher US tariffs. However, Prime Minister Shigeru Ishiba announced his resignation on Sunday, triggering a leadership contest that could potentially disrupt policy continuity and unsettle investors. The revised report shows that consumer spending is gaining momentum, and although business spending was revised downward, it still remains positive.
Economic resilience
Resilience of Japan's economy amid challenges
Japan's continued growth highlights the resilience of businesses in the face of a labor shortage that has pushed up personnel costs, persistent inflation that weighs on consumption, and US tariffs disrupting exports. The Bank of Japan (BOJ) has maintained its stance to keep raising interest rates if its price and growth forecasts materialize. However, with Ishiba's resignation announcement, the Liberal Democratic Party will hold a leadership race focused on pledges to help households cope with inflation.
Trade agreement
Trade deal with US boosts economic uncertainties
The BOJ welcomed a July 22 trade deal between Japan and the US as a positive step to ease economic uncertainties. Last week, President Donald Trump signed an executive order to implement that deal, reducing tariffs on US imports of Japanese cars to 15% and ending the stacking of previous tariffs on top of 15% universal tariffs. However, exports have fallen for three months through July, marking their steepest drop in over four years in that month.
Price adjustments
Japanese carmakers cutting prices to maintain market share
Government data shows that Japanese carmakers have been cutting prices while keeping their export volumes to the US unchanged, sacrificing profit margins to maintain market share. The nation's manufacturers saw an 11.5% drop in pretax profit in the April-June period, with transport equipment makers seeing a whopping 29.7% decline. Despite these challenges, nominal wages rose the most in seven months in July, and household spending increased for a third consecutive month.