By Makiko Yamazaki and Kantaro Komiya
TOKYO (Reuters) -Japan’s economy grew much faster than expected in the second quarter, helped by a rush of exports ahead of U.S. tariffs taking effect, giving the central bank some of the conditions it needs to resume interest rate hikes this year.
Gross domestic product (GDP) rose 1.0% on an annualised basis, government data showed on Friday, marking the fifth straight quarter of expansion after the previous quarter’s contraction was revised to growth.
However, analysts warn global economic uncertainties fuelled by U.S. tariffs could weigh on the world’s fourth-largest economy in the coming months.
“The April-June data masked the real effect of Trump’s tariffs,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. “Exports were strong thanks to solid car shipment volumes and last-minute demand from Asian manufacturers ahead of tariffs. But these aren’t sustainable at all.”
The increase in GDP was helped by surprisingly resilient exports and capital expenditure and compared with median market expectations for a 0.4% gain in a Reuters poll. It followed a 0.6% rise in the previous quarter, which was revised from a 0.2% contraction.
The reading translates into a quarterly rise of 0.3%, better than the median estimate of a 0.1% uptick.
Private consumption, which accounts for more than half of economic output, rose 0.2%, compared with a market estimate of a 0.1% increase. It grew at the same pace as the previous quarter.
Consumption and wage trends are key factors the Bank of Japan is watching to gauge economic strength and determine the timing of its next interest rate action.
Capital spending, a key driver of domestic demand, rose 1.3% in the second quarter, versus a rise of 0.5% in the Reuters poll.
Net external demand, or exports minus imports, contributed 0.3 of a point to growth, versus an 0.8 point negative contribution in the January-March period.
The government last week cut its inflation-adjusted growth forecast for this fiscal year to 0.7% from the initially projected 1.2%, predicting U.S. tariffs would slow capital expenditure while persistent inflation weighs on consumption.
Exports have so far avoided a major hit from U.S. tariffs as Japanese automakers, the country’s biggest exporters, have mostly absorbed additional tariff costs by cutting prices in a bid to keep domestic plants running.
The economic resilience, along with a U.S.-Japan trade deal struck last month, supports views the BOJ could hike interest rate later this year.
However, economists expect exports will suffer in the coming months as they start passing on costs to U.S. customers.
“It’s possible the economy could slip into decline in the July-September quarter as exports slow,” Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, said.
“For the economy to fully pick up, private consumption holds the key. Consumption could improve towards the end of the year as inflation gradually slows and sentiment recovers,” he said.
(Reporting by Makiko Yamazaki and Kantaro Komiya; Editing by Sam Holmes)
