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Tokyo, August 17: Japan’s economy grew at a slower pace in the second quarter of 2026, with weak consumer spending and declining capital investment weighing on domestic demand, according to official data released by Japan’s Cabinet Office on Monday.
Gross domestic product (GDP) increased 0.3% in the April-June quarter from the previous three months, marking the third consecutive quarterly expansion. However, growth slowed from 0.5% in the first quarter and fell short of the 0.5% increase forecast by analysts.
On an annualised basis, Japan’s economy expanded by 1.1% during the quarter. A survey of 37 economists conducted by the Japan Center for Economic Research had projected annualised growth of 1.67%.
Domestic demand remained weak during the quarter. Private consumption was unchanged in real terms, while capital expenditure declined 1.2%, equivalent to a 4.6% annualised decrease. The weakness in domestic activity offset gains from exports.
Net exports contributed 0.5 percentage points to overall GDP growth, while domestic demand made a negative contribution of 0.2 percentage points.
Economists expect economic growth to remain subdued in the second half of 2026. Norihiro Yamaguchi, lead economist for Japan at Oxford Economics, said companies could pass higher energy costs on to consumers, potentially weighing on spending.
Yamaguchi also said exports of artificial intelligence-related goods could remain strong in the near term, although weaker global activity outside the AI sector could limit overall export growth.
Japan remains particularly exposed to changes in global energy prices because it imports almost all of its crude oil requirements. Higher energy costs could therefore affect businesses and households by increasing transportation, production and other operating expenses.
Consumer cost pressures have also been affected by the weakness of the Japanese yen. The currency reached a four-decade low against the US dollar last month, increasing the domestic cost of imported goods and energy.
The latest GDP figures highlight the challenge facing Japan as it seeks to sustain economic growth while managing weak domestic consumption, lower capital spending and elevated import costs. The performance of household spending, business investment, exports and energy prices will remain important indicators for the economy during the second half of the year.
