Japan posts unexpectedly strong GDP, helped by resilient exports
TOKYO: Japan's economy grew much faster than expected in the second quarter as export volumes held up well against new U.S. tariffs, 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, especially as automakers struggle to keep prices down for American customers.
"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 tech manufacturers ahead of some sectoral 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 up 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.
The strong data contrasts with China, which saw factory output growth hit an eight month low and retail sales slow sharply in July.
Private consumption, which accounts for more than half of Japan's 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 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 a 0.8 point negative contribution in the January-March period.
The United States imposed 25% tariffs on automobiles and auto parts in April and threatened 25% levies on most of other Japanese imports. It later struck a trade deal in July that lowered tariffs to 15% in exchange for a U.S.-bound $550 billion Japanese investment package.
Japanese economy minister Ryosei Akazawa told a press conference that the latest GDP results confirmed that the country's economy was recovering modestly.
"Looking ahead, we expect better employment and income conditions and policy measures to support the modest recovery," he said. "But we need to be mindful of downside risks from U.S. trade policies."
Akazawa said the U.S. tariffs are likely to push down Japan's real GDP by 0.3-0.4%.
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)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Straits Times
2 hours ago
- New Straits Times
Manufacturers turn to AI to weather tariff storm
MANUFACTURERS like American lawnmower maker The Toro Company are not panicking at the prospect of United States President Donald Trump's global trade tariffs. Despite five years of dramatic supply disruptions, from the Covid pandemic to today's trade wars, Toro is resisting any temptation to stack its warehouses to the rafters. "We are at probably pre-pandemic inventory levels," said its chief supply-chain manager, Kevin Carpenter, looking relaxed in front of a whiteboard at his office in Minneapolis. "I think everybody will be at a 2019 level." Among US manufacturers, inventories have roller-coasted this year as they rushed to beat Trump's deadlines for tariff hikes, only to see them repeatedly delayed. But how can firms run lean inventories even as tariffs fluctuate, export bans come out of the blue, and conflict rages? One of the answers, they say, is artificial intelligence. Carpenter says he uses AI to digest the daily stream of news that could impact Toro's business, from Trump's social media posts to steel prices, into a custom-made podcast that he listens to each morning. His team also uses generative AI to sieve an ocean of data and to suggest when and how many components to buy from whom. It is a boom industry. Spending on software that includes generative AI for supply chains, capable of learning and even performing tasks on its own, could hit US$55 billion by 2029, up from US$2.7 billion now, according to US research firm Gartner, driven in part by global uncertainties. "The tool just puts up in front of you: 'I think you can take 100 tonnes of this product from this plant to transfer it to that plant.' "And you just hit accept if that makes sense (to you)," McKinsey supply chain consultant Matt Jochim said. The biggest providers of overall supply chain software by revenue are Germany's SAP, US firms Oracle, Coupa and Microsoft and Blue Yonder, a unit of Panasonic, according to Gartner. Generative AI is in its infancy, with most firms still piloting it spending modest amounts, industry experts say. Those investments can climb to tens of millions of dollars when deployed at scale, including the use of tools known as AI agents, which make their own decisions and often need costly upgrades to data management and other IT systems, they said. In commenting for this article, SAP, Oracle, Coupa, Microsoft and Blue Yonder described strong growth for generative AI solutions for supply chains without giving numbers. At US supply chain consultancy GEP, which sells AI tools like this, Trump's tariffs are helping to drive demand. "The tariff volatility has been big," said GEP consultant Mukund Acharya, an expert in retail industry supply chains. SAP said the uncertainty was driving technology take-up. "That's how it was during the financial crisis, Brexit and Covid. And it's what we're seeing now," Richard Howells, SAP vice president and supply chain specialist, said. An AI agent can sift real-time news feeds on changing tariff scenarios, assess contract renewal dates and other data points and come up with a plan of action. But supply chain experts warn of AI hype, saying a lot of money will be wasted on a vain hope that AI can work miracles. "AI is really a powerful enabler for supply chain resilience, but it's not a silver bullet," says Minna Aila, communications chief at Finnish crane-maker Konecranes and member of a business board that advises the OECD on issues including supply chain resilience. Aila said: "I'm still looking forward to the day when AI can predict terrorist attacks at sea, for instance." Konecranes' logistic partners are deploying AI on more mundane data, like weather forecasts. The company makes port cranes that are up to 106m high when assembled. When shipping them, AI marries weather forecasts with data like bridge heights to optimise the route. Toro supply chain chief Carpenter says that without AI, supply chain managers might need to run bigger teams as well. Is he worried that AI is coming for his job one day?
BusinessToday
5 hours ago
- BusinessToday
Is The Market Heading For A Melt-Up?
After a brief consolidation, global equities scaled a new all-time high. A confluence of factors is fuelling the next leg higher for risk assets. These include expectations of Fed rate cuts resuming from September, improving corporate earnings fuelled by AI investments and easing global trade tensions. A successful Trump-Putin meeting to end the Ukraine war and a dovish speech from Fed Chair Powell at the upcoming Jackson Hole annual retreat have the potential to drive equities higher, while disappointments here could lead to another consolidation. Standard Chartered remains constructive on risk assets over 6-12 months, the house prefers relatively inexpensive non-US markets, especially Asia ex-Japan equities, given stretched US equity valuations. SC also hedged against any tariff- or oil price-driven inflation risks through US inflation-protected bonds. Tariff impact starts to show in US inflation: The latest trigger for the risk asset rally was the US consumer inflation report for July which eased concerns about a rise in goods inflation due to tariffs. Core consumer inflation accelerated to 0.3% m/m due to some volatile services sector components. Core goods inflation, at 0.2% m/m, was unchanged from June. However, the subsequent producer inflation report showed companies are starting to pay higher prices for tariff-affected goods, which are likely to be passed on to consumers. SC expects the impact on consumer prices to be temporary as a slowing job market curbs wage growth, the biggest driver of structural inflation. Fed to start rate cuts in September: Against the backdrop of mixed US inflation reports, the focus is likely to turn to the decidedly weak US job market. There is one more round of inflation and jobs data due before the Fed meets on 16-17 September. Unless there is a spike in consumer inflation in August, the latest combination of weak jobs data and modestly high consumer inflation argues for the Fed to resume rate cuts in September. Besides the 25bps September rate cut, money markets are pricing one more 25bps rate cut by year end. Fed Chair Powell has a chance to confirm or push back against those expectations at his Jackson Hole speech on 22 August. Minutes from the Fed's last meeting, when two policymakers voted for rate cuts, would also be scrutinised closely. Solid AI-driven earnings: Besides Fed rate cut expectations, equities have been fuelled by yet another strong US earnings season, powered by accelerating AI investments. Guidance from the AI-related technology and communication services sectors remains strong, with the two sectors expected to deliver 19% and 13% earnings growth over the next 12 months. Watch US valuations: Strong earnings notwithstanding, the MSCI US equity index is trading at a 22x 12-month forward P/E multiple, close to its all-time high. A 12% earnings growth estimate for the next 12 months leaves little room for upward surprises, in our opinion. Investor positioning and sentiment indicators suggest there is still room for upside before they turn contrarian. In contrast, the MSCI Asia ex-Japan and China equity indices are trading at relatively attractive 13.8x and 12.3x P/E multiples, respectively. Given this, it would be prudent to reduce any US overexposure and rotate to Asia ex-Japan. Staying bullish on China equities, especially the tech sector: Besides attractive valuations, Asia ex-Japan equities are benefitting from easing trade tensions after major US allies, except for India, reached preliminary tariff agreements with Washington. Easing fiscal policies in China and Europe should help offset some of the negative impact of tariffs. The extension of the US-China trade truce for three months and the relaxation of US curbs on semiconductor exports to China are providing tailwinds to China stocks, especially in the technology sector. The house remains positive on the Hang Seng Technology index. Hedging inflation risks: The upcoming meeting between President Trump and President Putin to end the Ukraine conflict has the potential to ease a major headwind for European assets. An agreement would likely bring down oil prices, significantly easing inflation concerns. However, a deal is not guaranteed. We would hedge against upside risk to oil prices (if talks fail) through US inflation-protected government bonds.
The Star
5 hours ago
- The Star
Soccer-Barcelona's Rashford, Garcia registered by LaLiga in time for opener
Soccer Football - FC Barcelona present new player Marcus Rashford - FC Barcelona Club Shop, Barcelona, Spain - July 23, 2025 Barcelona's new signing Marcus Rashford talks during his presentation REUTERS/Albert Gea/File Photo (Reuters) -Barcelona's new forward Marcus Rashford and goalkeeper Joan Garcia have been registered in time to feature in the Spanish champions LaLiga opener at Mallorca on Saturday. Barca announced that Rashford and Garcia are both part of coach Hansi Flick's squad for the trip to Mallorca. Rashford signed last month from Manchester United on loan with an option to buy, while Garcia joined from Espanyol in June. Due to financial fair play complications, the Catalans were scrambling to register players, having spent more on signings and wages than they have generated in revenue for multiple seasons. Player profiles of Rashford and Garcia are now listed on LaLiga's website, although those for Gerard Martin and keeper Wojciech Szczesny are absent, suggesting Barcelona may be staggering registrations if unable to complete them all at once. Barca eased part of their registration woes following internal negotiations involving captain Marc-Andre ter Stegen. The German keeper initially refused to sign a long-term medical leave agreement that would clear 80% of his wages and help the club comply with financial rules. Sidelined for at least three months after surgery, he lost the captaincy before regaining it upon agreeing to the deal. (Reporting by Shifa Jahan in Bengaluru; Editing by Ken Ferris)
