Japan's economy expanded at an annualized rate of 2.1% in the first quarter, surpassing the median market forecast of 1.7%. This marks a solid recovery before the energy shock from the Middle East conflict clouds the outlook.
On a quarter-over-quarter basis, GDP rose 0.5%, beating the 0.4% forecast. Private consumption, which accounts for over half of Japan's GDP, increased 0.3%, above the expected 0.2%. Net external demand added 0.3 percentage point to growth, and capital expenditure rose 0.3%, both topping projections.
Analysts warn growth will slow as the aftermath of the Strait of Hormuz closure-triggered by U.S.-Israeli attacks on February 28-sends oil prices soaring. Japan, heavily reliant on Middle Eastern oil imports, faces surging fuel costs that are driving inflation and pressuring corporate profits.
The Bank of Japan has signaled a potential interest rate hike in June, with markets pricing in a strong chance of tightening.