Japan’s Q2 growth beats forecasts, but U.S. tariffs loom as risk
Japan’s economy expanded more than expected in the second quarter of 2025, buoyed by resilient exports and robust capital spending, offering the Bank of Japan some scope to resume interest rate hikes this year.
GDP rose 1.0% on an annualised basis in April-June, marking a fifth consecutive quarter of expansion after the previous quarter was revised from contraction to 0.6% growth, government data showed Friday. The result exceeded market expectations of 0.4%. On a quarterly basis, GDP grew 0.3%, compared with a forecast 0.1%.
Exports contributed 0.3 percentage points to growth, reversing a negative drag earlier in the year, while capital expenditure climbed 1.3%, well above the 0.5% forecast. Private consumption rose 0.2%, in line with the previous quarter.
Economists cautioned, however, that the strong figures may mask the underlying impact of U.S. tariffs. Shipments were lifted by solid auto exports and last-minute demand from Asian tech buyers, but analysts warn these gains are unlikely to last.
The U.S. imposed 25% tariffs on autos and auto parts in April, before striking a deal in July to reduce duties to 15% in exchange for a $550 billion Japanese investment package. Economy Minister Ryosei Akazawa said the tariffs could shave 0.3–0.4% off real GDP, though he maintained the outlook for a modest recovery supported by employment gains and policy measures.
Japan’s resilience contrasts with China, which saw factory output and retail sales weaken in July. Still, economists expect Japanese exports will come under pressure in the coming months as automakers pass tariff costs onto U.S. consumers.
“The economy could slip into decline in the July-September quarter as exports slow,” said Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting. “Private consumption will be key to sustaining growth, and could improve towards year-end if inflation eases.”
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