Japan economy grows at annualized rate of 2.1% in the first quarter, beating expectations

Japan’s economy exceeded analysts’ expectations, growing by 2.1% on an annual basis in the first quarter of 2026, thanks to rising consumption and strong exports.

Growth was significantly higher than the average forecast of 1.7% by analysts polled by Reuters and compared with 1.3% in the previous quarter.

Quarter on quarter, the economy expanded 0.5%, according to government data released Tuesday, improving from 0.3% growth at the end of 2025, compared with forecasts of 0.4%. GDP increased by 0.6% on an annual basis.

These figures do not reflect the full impact of the Iran war, which began at the end of February.

There is the Bank of Japan lowered its growth forecast It raised it to 0.5% from 1% for fiscal 2026 and sharply raised its core inflation outlook to 2.8% from 1.9%.

At its last meeting on May 7, the bank warned that Japan’s economic growth will likely slow this year as the rise in crude oil prices due to the Middle East crisis is expected to affect corporate profits and real household incomes.

At the time, Shigeto Nagai, head of Japan economics at Oxford Economics, told CNBC that Japan “could experience a very mild stagflation-like situation this year.”

Real disposable incomes have been negative “for some time,” he said, and he predicted the country would see growth stagnation and inflation above 2 percent.

Inflation in Japan accelerated in March for the first time in five months.

BOJ said, “The increase in crude oil prices, together with moves to reflect wage increases on sales prices, is expected to push up prices, especially energy and goods.” he said.

On Monday, Reuters reported It was stated that Tokyo is likely to issue new debt for the extra budget to cushion the economic blow caused by the Middle East war, as it subsidizes energy bills.

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