Japan’s first-quarter economic data brought a modest sigh of relief to the markets. According to the revised figures released on June 9, real GDP posted no growth—but also avoided contraction. While hardly a stellar performance, this outcome signals a degree of economic resilience amidst a highly uncertain global backdrop and was in line with expectations.

The main drag remains weak exports. Japan’s auto industry, in particular, continues to feel the pressure from U.S.-imposed tariffs, dampening business investment sentiment. That said, there were glimmers of strength on the domestic front. Household consumption ticked up by 0.1% in Q1, helped by wage increases following spring labor negotiations and a slight improvement in household income conditions. This modest rise in private consumption helped stabilize the economy.

Still, many of Japan’s publicly listed companies aren’t optimistic about their earnings prospects for the current fiscal year ending March 2026. Investor confidence around future capital spending and wage hikes is starting to waver. Some economists warn that without a pickup in the second quarter, Japan risks falling into a technical recession—two consecutive quarters of negative growth.

Adding to the uncertainty is the risk of renewed trade tensions. Discussions with the U.S. over import tariffs on Japanese goods—often dubbed “Trump-style tariffs”—are ongoing. While both sides hope for progress ahead of the G7 summit in June, Japan’s Economic Revitalization Minister Akazawa admitted that substantial gaps remain and that a near-term resolution is unlikely.

On the monetary policy front, the Bank of Japan remains cautious. Despite momentum in wage and inflation data, the overall pace of recovery remains slow and external headwinds persist. Most analysts do not expect another rate hike before early 2026 at the earliest.

Looking ahead, real GDP growth for 2024 is projected at around 0.7%. That pace may slow slightly with forecasts ranging between 0.4% and 0.9% in 2026. Domestic consumption and potential government stimulus should provide some support, but exports and corporate investment will likely stay subdued due to global trade friction and policy uncertainty.

Experts broadly agree—without a meaningful easing in global trade tensions, Japan’s recovery will remain uneven. In the longer term, structural reform, productivity gains, and addressing demographic challenges like an aging workforce are all critical to sustaining growth.

Bottom line: While Q1 GDP held steady in a tough environment, the road ahead is still fraught with risk. Export weakness, unclear policy direction, and global uncertainties leave plenty to watch in the quarters to come.