Japan’s Huge GDP Beat Driven by Exports as Domestic Demand Falls

Japan’s economy expanded at a much faster clip than forecast, as a surge in exports more than offset weaker-than-expected results for both business investment and private consumption.

Gross domestic product grew at an annualized pace of 6% in the second quarter, marking the strongest growth since the last quarter of 2020, Cabinet Office data showed Tuesday. The figure exceeded economists’ forecast of 2.9% growth. Net exports contributed 1.8 percentage points to the expansion versus consensus estimates of 0.9 point.

Tuesday’s data add to signs that the world’s third largest economy continues to recover from the pandemic. The size of the economy grew to 560.7 trillion yen ($3.85 trillion), the biggest on record, surpassing its pre-pandemic peak. The result was consistent with views at the International Monetary Fund, which recently bumped up its 2023 growth outlook for Japan to 1.4%.

Still, the strong result came with caveats, as much of the growth came from external demand.

“I can’t say all is good when I look at the content. Only net exports beat estimates a lot while consumption weakened and it remains below the level prior to the pandemic,” said Taro Saito, head of economic research at NLI Research Institute. “I can say that this won’t be a factor to move the BOJ toward policy normalization.”

Trade data showed that exports remained resilient over the last quarter, led by auto shipments to the US and Europe. It’s unclear if that boost will be sustained, as economists see headwinds on the horizon in the US, China and Europe.

Rising numbers of inbound travelers, whose contribution is also factored into the net exports component of GDP, provided a big economic boost after authorities lifted border controls at the end of April. The number of foreign visitors has recovered to more than 70% of pre-pandemic levels as of June, according to the Japan National Tourism Organization. Data for July are due Wednesday.

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