Stronger-than-expected private consumption and capital expenditure drove Japan’s Q1 GDP beat, but energy risks loom over Q2 outlook.
Japan’s economy expanded at an annualized 2.1% in Q1, exceeding the 1.7% forecast and marking a sharp rebound from a revised 0.8% gain in Q4. Quarter-on-quarter growth reached 0.5%, above the 0.4% estimate, supported by a 0.3% rise in private consumption and capital expenditure, both topping expectations.
The GDP price deflator held at 3.4% year-on-year, matching the prior quarter and surpassing the 3.1% forecast. Net external demand contributed 0.3 percentage points to growth, slightly above projections. Analysts had anticipated a modest uptick but warn the Iran war energy shock could reverse momentum in Q2.
Markets had priced a potential Bank of Japan rate hike in June, but escalating energy supply risks may force policymakers to delay tightening. Japan’s reliance on Middle East oil imports leaves it vulnerable to disruptions, clouding the growth outlook.