The Japanese economy resisted in the first quarter of 2026, with growth of 0.5%, but inflation driven by the war in the Middle East complicates the equation for Tokyo (AFP / Kazuhiro NOGI)
The Japanese economy resisted in the first quarter of 2026, with growth of 0.5%, but inflation driven by the war in the Middle East complicates the equation for Tokyo, faced with a surge in its bond yields and which is considering an additional budget.
The gross domestic product (GDP) of the world’s fourth-largest economy, boosted by solid exports and stimulus measures, climbed 0.5% in January-March compared to the previous quarter, according to official figures published on Tuesday.
This is a slight acceleration after the performance of 0.2% in the last quarter of 2025, and higher than the expectations of analysts surveyed by the Bloomberg agency, who expected growth of 0.4%.
La Première ministre japonaise Sanae Takaichi le 8 mai 2026 à Tokyo (AFP / Kazuhiro NOGI)
The substantial recovery plan of 117 billion euros adopted at the end of 2025 by the government of Prime Minister Sanae Takaichi to moderate the effects of stubborn inflation continued to support activity and spending.
Another favorable factor: foreign trade has begun to recover under the effect of the increase in exports to Asia and the recovery in automobile sales to the United States.
However, the war in the Middle East seriously darkens the horizon for the Japanese economy, very dependent on Gulf hydrocarbons and subject to worsening inflationary tensions.
– L’inflation accélère –
The conflict has paralyzed traffic in the Strait of Hormuz since the end of February, contributing to soaring crude oil prices, a surge which threatens to have repercussions on food prices.
Inflation in Japan has already accelerated significantly in March to 1.8% year-on-year (excluding fresh products), and consumer morale in the archipelago is crumbling.
Above all, the central bank (BoJ) sharply raised its inflation forecasts at the end of April, to 2.8% for the current fiscal year, due to the impact of the conflict. This could encourage it to raise its rates as early as June.
The main government spokesperson Minoru Kihara in Tokyo on May 8, 2026 (AFP / Kazuhiro NOGI)
“Given the continued uncertainty surrounding the situation in the Middle East, it is important to closely monitor price developments and their impact on the economy,” top government spokesman Minoru Kihara told reporters on Tuesday, adding that Takaichi had tasked the finance minister with studying measures to minimize risks.
Tensions on oil supplies (Japan depends 95% on the Middle East for its crude imports), but also other raw materials such as naphtha – essential for the chemical industry – or aluminum – essential for car manufacturers – risk slowing down Japanese production… And undermining growth.
Marcel Thieliant of Capital Economics warned that the conflict in the Middle East risked weighing on future economic indicators.
“The Japanese economy entered the war with Iran on a strong trajectory, but we believe GDP growth will come to a screeching halt this quarter and next,” he wrote in a note.
Japan is working to curb rising oil prices through government subsidies, but the country is expected to feel the full impact of soaring energy prices in the coming months, Thieliant said.
In the immediate future, the prospects of monetary tightening, following concerns over Sanae Takaichi’s budgetary policy, have contributed to a jump in Japanese government bond yields in recent days.
Tokyo is also suspected of having spent tens of billions of dollars on the foreign exchange market to support the value of the yen, which has depreciated in recent months amid global uncertainty and a gap between American and Japanese interest rates.
It is in this context that Ms. Takaichi announced on Monday that she was considering developing a new supplementary budget with the aim of preserving growth by once again supporting consumers in the face of rising prices, from energy to food.
“From the second quarter, the tightening of oil supply will weigh on exports and consumption, thus slowing growth,” warns Taro Kimura, analyst at Bloomberg Economics.
But “the central bank will probably wait until the uncertainty linked to the war in Iran dissipates and a political signal emanates from Sanae Takaichi – favorable to recovery measures – before moving on” to monetary tightening, he predicts.
