Japan's gross domestic product for the April-June quarter posted a higher-than-expected 0.3% increase on quarter, or an annualized 1.0%, for the fifth straight quarterly economic growth as external demand turned out to be stronger than forecast with a combination of modest export growth and weak imports reflecting sluggish domestic demand.

The Q2 growth followed a slight 0.1% rise q/q (+0.6% annualized) in January-March, which was revised up from the economy's first contraction in four quarters with a slight 0.04% dip (-0.2% annualized). Q1's external demand remains weak, trimming GDP by 0.8 percentage point in payback for a technical jump in net exports in Q4 (+0.8 point). Turning the Q1 GDP contraction to growth came from domestic demand, which lifted the total output by 0.9 point, revised up from +0.8 point. Consumption was slow but resilient despite sticky inflation.

The latest GDP data that contains many revisions to recent figures showed the economy contracted for the third consecutive quarter in January-March 2024, when it fell 1.1% at an annualized pace following a slight 0.2% drop in October-December 2023 and a 4.1% plunge in the prior quarter.

In April-June 2025, domestic demand lowered total domestic output by 0.1 percentage point after boosting GDP by 0.9 point in Q1 and trimming it by 0.2 point in Q4. External demand (exports minus imports) lifted GDP by 0.3 point after pushing it down 0.8 point the previous quarter.

Looking ahead, Japan's economic performance in the July-September quarter is expected to remain sluggish as consumers stay frugal about spending amid falling real wages, external demand is marred by trade rows and some firms are wary of implementing their solid capex plans. Uncertainty over global growth remains despite trade deals on tariffs between Washington and U.S. allies. Trump tariffs on autos and metals forced Japanese carmakers to slash the prices for their U.S. customers to protect their market share, which could hurt profits among manufacturers.

Key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:

GDP q/q: +0.3% (+0.1%); 5th straight growth
GDP annualized: +1.0% (+0.6%); 5th straight growth
GDP y/y: +1.2% (+1.8%); 4th straight rise
Domestic demand: -0.1 point (+0.9 point); 1st drop in 2 qtrs
Private consumption: +0.2% (+0.2%); 5th straight rise
Business investment: +1.3% (+1.0%); 5th straight rise
Public investment: -0.5% (+0.1%); 1st drop in 2 qtrs
Private inventories: -0.3 point (+0.6 point); 1st drop in 2 qtrs
Net exports (external demand): +0.3 point (-0.8 point), 1st rise in 2 qtrs

Japan's gross domestic product for the April-June quarter is forecast to be nearly flat, up just 0.1% on quarter, or an annualized 0.4%, as stiff Trump tariffs on autos and metals forced Japanese carmakers to slash the prices for their U.S. customers to protect their market share while 3% inflation sparked by protracted domestic rice supply shortages hurt consumer spending.

The sluggish Q2 growth would follow the economy’s first contraction in four quarters in January-March with a slight 0.04% dip (officially -0.0%), or an annualized -0.2%, which was in payback for a technical jump in net exports in the previous quarter. It was also due to flat consumption amid high costs of living and the uncertainty over global growth and inflation triggered by the protectionist U.S. trade policy.

Domestic demand is expected to provide a positive 0.1 percentage point contribution to total domestic output in Q2 after boosting Q1 GDP by 0.8 point. External demand (exports minus imports) is also estimated to have raised the Q2 GDP by 0.1 point after pushing down the total output by 0.8 point the previous quarter.

Looking ahead, Japan's economic performance in the July-September quarter is expected to remain sluggish as consumers stay frugal about spending amid falling real wages, external demand is marred by trade rows and some firms are wary of implementing their solid capex plans.

Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:

GDP q/q: +0.1% (-0.04%); 1st rise in 2 qtrs
GDP annualized: +0.4% (-0.2%); 1st rise in 2 qtrs
GDP y/y: +0.8% (+1.7%); 4th straight rise
Domestic demand: +0.1 point (+0.8 point); 2nd straight rise
Private consumption: +0.1% (+0.1%); 5th straight rise
Business investment: +0.8% (+1.1%); 5th straight rise
Public investment: +1.1% (-0.6%); 1st rise in 4 qtrs
Private inventories: -0.3 point (+0.6 point); 1st drop in 2 qtrs
Net exports (external demand): +0.1 point (-0.8 point), 1st rise in 2 qtrs

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Gross domestic product is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.