Japan’s modest Q2 growth highlights need for strategic investment to boost productivity

Japan’s real GDP expanded at an annualised 1.4% in the April-June quarter, continuing a three-quarter growth streak while external shocks from the Middle East weighed on the economy. Domestic demand remained tepid, with private consumption barely moving despite wage increases and fuel subsidies, and capital investment falling for a second straight quarter amid labor and material shortages. Durable-goods purchases rose thanks to a tax cut on automobiles and higher air-conditioner demand ahead of stricter efficiency standards.

The plunge in crude oil imports after the Strait of Hormuz closure lifted the trade balance, but the government’s drawdown of strategic reserves offset some of the gain. Looking ahead, the administration of Prime Minister Sanae Takaichi is urged to focus on strategic, AI-driven investment and to tighten fiscal support to sustain households while reducing reliance on fossil fuels.