Japan's economic growth is likely to slow sharply in the second quarter, and a renewed contraction in one or more of the remaining quarters of the year cannot be ruled out, Capital Economics Chief Global Economist Julian Jessop said Thursday.
Capital Economics said that the growth in the first quarter was supported mainly by the government's eco-car subsidies, which helped household spending rise 1.1 percent quarter-over-quarter. However, growth is not strong enough to sustain the current level of spending. Also, the positive influence of the subsidy - the budget for which is expected to run out over the summer, resulting in a sharp fall in sales - has already started fading, the firm noted.
According to the economist, the 5.4 percent sequential growth in public investment in the first quarter, which mainly involved spending on earthquake reconstruction, only represents the replacement of lost assets which leaves the economy no stronger than before. Also, Japan's dire public finances mean that the boost from reconstruction over the next year or so will be partly offset by cuts in government spending elsewhere and by the future tax hikes needed to pay for it.
The fact that both residential and non-residential private investment decreased in the first quarter, and weakening exports amid fragile growth elsewhere in the world underline the weakness in the Japanese economy, the economist said.
Data from the Cabinet Office showed that Japan's economy expanded 1 percent sequentially in the first quarter, after remaining flat in the fourth quarter. On an yearly basis, GDP was up 4.1 percent.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.