Projected Annual GDP Growth for Q2 in Japan Forecasted at 0.5%
Japan's Q2 2025 Economic Outlook: Fragile Growth Amid Trade Tensions
Japan's economy is expected to experience a modest growth in the second quarter of 2025, with the real gross domestic product (GDP) projected to increase by around 0.1% compared to the previous quarter, translating to an annualized growth of 0.3%. This growth is a slight recovery from a contraction in Q1 2025.
The estimates, derived from 10 think tanks, suggest that personal consumption will remain flat or subdued due to high living costs and inflation pressures, notably from food prices. Corporate capital expenditure shows cautious strength, but some firms are wary of fully implementing solid capex plans amid global uncertainties.
The growth in corporate capital expenditure is partly due to higher spending on labor-saving products to address worker shortages. However, the projected annualized growth rate for the April-June 2022 quarter is 0.5%.
Global trade conditions, particularly U.S. protectionist tariffs on autos and metals, are having a dampening effect on Japan's exports. This trade environment contributes to the sluggish external demand and is a key factor keeping growth weak in Q2 2025.
The higher tariffs imposed by the U.S. President Donald Trump's administration are expected despite the firm exports in the first quarter of fiscal 2025. The rise in personal consumption is attributed to consumers growing thrifty due to increases in food and other prices.
The Japanese government has not yet disclosed any data regarding the first quarter of fiscal 2025. The preliminary GDP data for the April-June 2022 quarter will be disclosed by the Japanese government on August 15, 2022.
The Bank of Japan expects economic growth to moderate due to slowing overseas economies and declining corporate profits amid ongoing trade tensions, albeit supported by accommodative financial conditions. Inflation is forecast to moderate gradually after recent food price shocks.
Japan's Cabinet Office has downgraded GDP growth forecast for 2025 from 1.2% to 0.7%, citing the impact of U.S. tariffs and expected slower global growth as key factors. Overall, Japan's Q2 2025 economic outlook shows fragile growth with consumer spending subdued by inflation and cost-of-living pressures, while corporate investment faces headwinds from uncertain external demand and trade disputes, particularly U.S. tariffs that weigh on exports and profits.
[1] Source: 10 think tanks [2] Source: Bank of Japan [3] Source: Corporate spending data [4] Source: Japanese government (forthcoming data) [5] Source: Japanese Cabinet Office
The fragile growth in Japan's Q2 2025 economy, primarily driven by subdued consumer spending and cautious corporate investment, is also influenced by the financial sector, with global uncertainties and trade tensions affecting the business environment and corporate capex plans. Japanese firms are adapting by increasing spending on labor-saving products in response to worker shortages, but ongoing trade disputes, such as the US tariffs, continue to impact export volumes and profits.
