Japan Economic Comment "Q1 GDP confirmed broad-based strength" Kurihara

Research evidence excerpt

Japan Economic Comment "Q1 GDP confirmed broad-based strength" Kurihara

Global Research

19 May 2026ab

Japan Economic Comment Economics

JapanQ1 GDP confirmed broad-based strength

Go Kurihara

Associate Economist

Q1 real GDP grows solidly at 2.1% q/q saar go.kurihara@ubs.com

+81-3-5293 3000

Q1 real GDP grew solidly at 2.1% q/q, saar, following 0.8% in Q4, beating both our

expectation and the consensus forecast of 1.7%. On a year-on-year basis, growth came

in at 0.6%y/y, marking the seventh consecutive quarter of positive expansion. By

demand component, growth was well balanced between domestic and external

demand, both of which contributed positively to GDP. For FY2025 (from April to March),

real GDP growth marked at 0.8%, steadily accelerating from -0.0% in FY2023 and

0.5% in FY2024. Nominal growth was supported by firm domestic inflation above 2%,

reaching a stronger 4.2% in FY2025, following 4.7% in FY2023 and 3.7% in FY2024,

broadly in line with levels in the US and the euro area.

While this result predates the impact of higher oil prices due to the closure of the Strait

of Hormuz, we believe that the fact the economy remained strong right up until that

point was itself a positive factor for the BoJ in moving forward with rate hikes.

Solid growth across domestic demand components

In detail, real GDP growth was driven roughly equally by domestic demand (+1.0ppt of

the 2.1%q/q saar) and net exports (+1.1ppt). Within domestic demand, private

consumption rose 0.3%/q, contributing +0.6ppt to overall GDP growth, and exceeding

our expectation of 0.1%. With the stabilization of consumer inflation (as measured by

the private consumption deflator), from a peak of 3.2% in Q1 2025 to 2.0%,

households are seeing gains in purchasing power, supported by historically high real