Japan’s economy expanded at an annualized real rate of 2.1 percent in the January-March quarter, marking a second consecutive quarter of growth, driven by a recovery in exports and steady private consumption, government data showed Tuesday, although the full effects of the Middle East conflict have yet to emerge.

According to a preliminary report from the Cabinet Office, Japan’s inflation-adjusted gross domestic product rose 0.5 percent in the first quarter of 2026 compared with the October-December period, surpassing market expectations, News.Az reports, citing Kyodo.

GDP measures the total value of goods and services produced within a country.

Economists surveyed by the Japan Center for Economic Research had projected annualized real growth of 1.56 percent. However, they expect expansion to slow to 0.45 percent in the April-June quarter amid concerns that the Middle East conflict and rising crude oil prices could pressure corporate profits and consumer spending.

Private consumption, which makes up more than half of Japan’s economy, increased 0.3 percent in the January-March period, extending growth to a fifth consecutive quarter. Officials said demand for clothing and increased restaurant spending helped support the rise.

Consumer spending also benefited from government subsidies for gas and electricity bills, along with solid wage growth as companies raised pay to attract and retain workers, economists said.

However, another government official warned that worsening consumer sentiment linked to the Middle East conflict could weigh on future spending and should be closely monitored.

Exports climbed 1.7 percent from the previous quarter, supported by a recovery in automobile shipments to the United States and strong demand for industrial machinery and electrical equipment. Imports rose 0.5 percent.

Economists noted that exports to the United States have rebounded as uncertainty surrounding U.S. tariff policy eased following a bilateral agreement reached last year.

Business investment edged up 0.3 percent from the previous quarter, driven by increased spending on research and development due to strong corporate earnings, as well as investment in general-purpose machinery and electric lighting equipment, according to a government official.

The official added that it remains unclear how much impact the Middle East conflict — triggered by U.S.-Israeli attacks on Iran beginning in late February — had on the latest economic data.

Economists warned that prolonged instability in the Middle East could disrupt imports of crude oil and petroleum products such as naphtha, while also affecting exports to the region.

GDP growth was reduced by 0.1 percentage point due to lower private inventories, apparently linked to the government’s decision to release oil from national reserves, beginning with privately held stockpiles.

Japan’s heavy dependence on Middle Eastern oil imports leaves the country vulnerable to any disruption in the Strait of Hormuz, a critical global shipping route. Rising oil prices are also raising concerns about higher inflation.

Prime Minister Sanae Takaichi said Monday that the government is considering a supplementary budget for fiscal 2026 to help offset the impact of elevated crude oil prices.

The government is also exploring funding options for renewed financial assistance covering utility bills during the July-September period, in addition to gasoline subsidies introduced in mid-March.

Nominal GDP rose 0.8 percent from the previous quarter, equivalent to an annualized growth rate of 3.4 percent.

News.Az 

By Nijat Babayev