Japan\’s modest growth remains steady amid U.S. tariffs

Japan’s Economy Shifts Ahead of U.S. Tariffs

Japan’s latest quarterly data show modest growth, a welcome sign for Prime Minister Shigeru Ishiba whose government has faced political uncertainty.

Quarterly Growth Surprises Analysts

• The country’s GDP expanded 0.3 percent in the three months ending June, exceeding expectations of 0.1 percent.
• Revised estimates raised the previous quarter’s figure, indicating a 0.1 percent expansion rather than a contraction.
• On an annualized rate, growth reached 1.0 percent, outpacing forecasts of 0.4 percent and moving above the 0.6 percent rate from the last quarter.

Trade Deal Mitigates Tariff Threats

Last month Japan secured a trade agreement that lowered the threatened 25 percent “reciprocal” tariffs to 15 percent on other goods, a key move that eases pressure on exports.

• Tariffs on Japanese cars, which account for eight percent of national employment, were cut to 15 percent, though this change has yet to take effect in Tokyo.
• Automaker Toyota revised its annual net‑income forecast downward by 14 percent, projecting a $9.5 billion hit from tariffs this year.
• First‑quarter profits at Honda fell by half, yet the firm lowered its tariff‑impact forecast. Electronics giant Sony also adjusted its outlook.

Economists Warn of Export Risks

Yoshiki Shinke, economist at the Dai‑ichi Life Research Institute, cautioned that Japan’s economy still faces many downside risks, especially in exports.

• Automakers are expected to rethink pricing strategies, possibly raising prices in the future.
• Higher prices could reduce U.S. sales volumes and press downward on overall export volumes.

Impact on Monetary Policy

The U.S. administration’s approach to the Bank of Japan (BoJ) raises questions about its future interest‑rate policy.

• U.S. Treasury Secretary Scott Bessent told Bloomberg TV that Japan’s inflation problem is behind the curve, hinting at BoJ tightening in October.
• BoJ officials have been reluctant to raise borrowing costs, attributing above‑target inflation to transient factors.
• Monetary experts believe that growth will slow slightly over the coming quarters, although the BoJ will likely resume its tightening cycle by October.

Political Context Behind the Numbers

Japan’s modest growth provides a boost for Ishiba, whose coalition lost its U.S. majority after the recent upper house elections. While voters anger at the cost of living, public opinion polls show a slight preference for Ishiba to remain in office. An obvious successor has yet to emerge, and the opposition remains too fragmented to form an alternative government.