Japan’s economy demonstrated resilience in the face of rising energy prices, growing at an annualized rate of 2.1% in the first quarter of the year, government data revealed on Tuesday. This growth, recorded from January to March, marks the second consecutive quarter of expansion, bolstered by robust consumer and business spending alongside increased government expenditure.
The real gross domestic product (GDP), which represents the total value of goods and services produced, rose by a seasonally adjusted 0.5% from the previous quarter. Private consumption, a significant component of GDP, increased by 0.3% quarter-on-quarter, equating to an annualized growth of 1.1%, according to preliminary figures from the Cabinet Office. Public demand also grew by 0.3% from the previous quarter, contributing to the overall economic performance.
Despite the positive growth figures, Japan faces challenges due to escalating oil prices, exacerbated by the ongoing conflict in Iran. Before the war, Brent crude was trading around $70 a barrel, but prices have surged to nearly $110 a barrel, largely due to the blockade of the Strait of Hormuz—a crucial channel for oil exports from the Persian Gulf to Asia. In response, Japan has tapped into its oil reserves and is exploring alternative supply routes.
The quarter also saw an increase in Japan’s trade activities, with imports rising by 0.5% and exports by 1.7%. A notable concern, however, is the shortage of naphtha, an oil-related product essential for manufacturing various goods, which has become a significant issue for Japanese industries. In light of these challenges, Prime Minister Sanae Takaichi has pledged to secure sufficient supplies, potentially necessitating substantial government spending.
Analysts from the Japan Center for Economic Research suggest that moderate growth will continue, driven by investments in artificial intelligence technology and defense. As energy costs contribute to rising prices, there is speculation that strong growth could prompt Japan’s central bank to consider raising interest rates, marking a shift from its long-standing low-rate policy. Although Japan’s inflation remains lower than in the U.S., wage growth is failing to keep pace with price increases. Meanwhile, the Tokyo stock market’s benchmark Nikkei 225 index, which has recently reached record highs, saw a 0.6% decline in Tuesday morning trading.
