Japan dodges recession in April-June even as U.S. tariffs hit
Gross domestic product grew at an annualized pace of 1% in the three months through June from the prior period, surpassing economists' forecast of a 0.4% gain, the Cabinet Office reported Friday. This followed a revision to the previous quarter's results to 0.6% growth, reversing from a preliminary contraction.
Gains were led by domestic demand, with business investment rising 1.3%, surpassing the consensus estimate of 0.7% growth, and private consumption nudging higher.
Friday's GDP figures are the first to reflect the impact of U.S President Donald Trump's so-called reciprocal tariffs and auto levies, which took effect in April. During the period, Japan faced a 10% baseline tariff along with 25% levies on cars. A 25% tax on U.S. steel imports introduced in March was doubled in early June.
Ishiba's administration has said the car levies will be set at 15%, the same as the current baseline rate, once Washington adjusts executive orders in line with an agreement reached in late July. Earlier this month the government cut its real growth projection for this fiscal year to 0.7% from a previous forecast of 1.2%. The downgrade partly reflected a darkening global economic outlook resulting from Trump's trade policies.
Against that backdrop, the economy's show of resilience in the April-June period will provide some political relief for Ishiba, whose ruling coalition lost its majority in the upper house in last month's election partly due to widespread frustration over the persistent rise in costs of living. Ishiba has so far rejected calls from within his party to resign.
Signs of economic resilience will allow the Bank of Japan to stay on a gradual path toward rate hikes. While the BOJ is expected to hold steady when it next sets policy on Sept. 19, some 42% of economists surveyed anticipate a move in October.
BOJ Gov. Kazuo Ueda said last month that authorities will keep raising borrowing costs if they're confident domestic demand can stay steady.
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