Japan Watch: Jan-Mar GDP (Prelim): Broad-based expansion; downside risks building

Research evidence excerpt

Japan Watch: Jan-Mar GDP (Prelim): Broad-based expansion; downside risks building

Modest upward revision to 2026 growth

We revise our GDP forecast to reflect recent data, including the 1Q preliminary estimate.

The 1Q upside lifts our CY2026 growth forecast to +0.6% YoY, from +0.4% previously.

The outlook from 2H CY2026 is unchanged. As the Middle East shock feeds through,

growth slows gradually. Structural investment demand and fiscal support limit downside

risks, reducing the likelihood of an outright contraction. The CY2027 growth forecast is

unchanged at +0.6% YoY.

The outlook for 2H CY2026 onwards remains sensitive to fiscal policy. In the near term,

the focus will be on discussions around the supplementary budget starting this week and

the June Basic Policy, which will shape the fiscal stance from FY2027 (see Cost of

energy subsidies: rising risk of a supplementary budget ahead of summer, 23 April and

Japan’s fiscal policy: A guide to the debate,18 May).

Exhibit 2: Jan-Mar GDP: Stronger-than-expected growth Exhibit 3: All expenditure components excluding inventories

Japan's real GDP (JPYtn, annualized) contributed positively to 1Q GDP growth

Contribution to QoQ% annualized real GDP growth

Nominal Real 4

680 3

640 1

600 -1

-2

-3

-4

520 24 24 24 24 25 25 25 25 26

Mar Jun Sep Dec Mar Jun Sep Dec Mar

480 Private consumption Private capex

01 03 05 07 09 11 13 15 17 19 21 23 25 Public demand Net exports

Others Real GDP %QoQ SAAR

Source: BofA Global Research, Cabinet Office Source: BofA Global Research, Cabinet Office

BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Exhibit 4: Semi-durables, non-durables, and services all rose modestly Exhibit 5: Housing investment also rose slightly

GDP-based consumption (by goods/services, 2019 average=100) Housing Investment (SAAR)