Japan’s Q1 GDP revised lower to 1.8%; weak business spending clouds outlook – Firstpost

Japan’s economic growth in the first quarter of 2026 was revised lower than initially estimated, reflecting weaker-than-expected business investment and underscoring the challenges facing the export-reliant economy amid rising energy prices and geopolitical tensions in West Asia.

Revised data released by Japan’s Cabinet Office on Monday showed that the world’s fourth-largest economy expanded at an annualised rate of 1.8 per cent in the January-March quarter, down from the preliminary estimate of 2.1 per cent. The figure, however, was still stronger than economists’ median forecast of 1.3 per cent growth.

On a quarter-on-quarter basis, gross domestic product (GDP) grew 0.5 per cent, matching the preliminary estimate and exceeding market expectations for a 0.3 per cent expansion.

Capital spending turns weaker

The main drag on the revised GDP figures came from business investment, which contracted 0.7 per cent during the quarter. That marked a sharp downward revision from the initial estimate of a 0.3 per cent increase and highlighted caution among Japanese firms despite improving domestic demand.

Private consumption, which accounts for more than half of Japan’s economy, rose 0.3 per cent from the previous quarter, unchanged from the preliminary estimate. The steady increase suggested households continued to spend despite inflationary pressures.

External demand, measured as exports minus imports, contributed 0.3 percentage point to GDP growth, while domestic demand added 0.2 percentage point. Both figures were unchanged from the initial reading.

Energy shock raises fresh concerns

The revised growth figures come as Japan grapples with the economic fallout from escalating tensions in West Asia.

The conflict intensified after US-Israeli strikes on Iran in late February and Tehran’s effective closure of the Strait of Hormuz, a vital shipping route through which roughly one-fifth of the world’s oil and gas supplies normally pass. The disruption has pushed global energy prices sharply higher and raised fears of prolonged supply constraints.

Japan, which relies heavily on imported energy and Middle Eastern oil, is particularly vulnerable to such shocks. Higher fuel costs are adding to inflationary pressures, reducing household purchasing power and squeezing corporate profit margins.

Economists warn that a sustained rise in oil prices could slow consumer spending and business investment further, potentially undermining the recovery in the months ahead.

Government rolls out support measures

In response to rising energy costs, the government of Japanese Prime Minister Sanae Takaichi last week approved a supplementary budget worth $19 billion aimed at cushioning households and businesses from the impact of higher fuel prices.

The package includes measures to ease the burden of energy costs and support economic activity as policymakers seek to prevent a sharper slowdown.

Focus shifts to Bank of Japan

Attention is now turning to next week’s policy meeting of the Bank of Japan, where officials will assess the implications of the energy shock and the broader economic outlook.

Despite the heightened uncertainty, sources told Reuters that the central bank is still expected to raise interest rates this month, provided the conflict in West Asia does not escalate further and trigger significant market volatility.

The revised GDP data suggest Japan entered the second quarter with less momentum than previously thought, leaving policymakers to balance concerns over inflation with the risks posed by slowing investment and geopolitical instability.