Japan GDP Resilience continues, but externally exposed

Research evidence excerpt

Japan GDP Resilience continues, but externally exposed

Economics - Data Reactions ● Japan

19 May 2026

Exports strengthened, but the tourism story is getting complicated. Real exports rose 1.7% q-o-q, with goods exports (notably

semiconductors and electronic components) providing support.2 However, services exports face headwinds: inbound tourism from

mainland China has already been weakening amid deteriorating Japan-China relations (see Chart 3). With jet fuel prices rising and

flight disruptions linked to the Middle East conflict, tourism demand could soften further at the margin.

Policy mix: fiscal support helps near-term resilience; BoJ normalisation still looks on track. The government continues to lean

against cost pressures via energy measures. Electricity and gas subsidies provided relief in 1Q, and Prime Minister Sanae Takaichi

has signalled openness to a supplementary budget for another round of summer subsidies and to continue capping gasoline prices

around JPY170/litre.3

For the BoJ, today’s print supports the view that growth is recovering, but risks are building – particularly from the external side as

global trade momentum slows and the weaker yen raises costs for importers. Policy normalisation still looks on track, with a rate hike

likely over the next couple of months.

Chart 1: Contributions to Japan’s 1Q26 GDP growth

ppt contributions to GDP growth (q-o-q, sa)

GDP (q-o-q, sa)

Domestic demand

Private demand

Residential investment

Business investment

Changes in private inventory

Public demand

Government consumption

Government investment

Changes in public inventory

Net exports

Exports

Imports

-0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60

Source: CEIC, HSBC

Chart 2: Consumer sentiment deteriorates Chart 3: Inbound tourism declined in 1Q26,