The annualized 1.8 percent GDP growth in the April-June period — the third quarter in a row with growth — does not appear to warrant optimism over the course of the Japanese economy in the coming months. The 0.6 percent increase in private consumption was aided by robust travel and other leisure spending during the 10-day holiday spell from late April to early May, a one-off measure that accompanied the imperial era transition from Heisei to Reiwa, while the intensifying trade row between the United States and China spells greater uncertainties regarding overseas markets and corporate earnings.
April-June growth was faster than the forecasts of many private economists: Solid domestic demand, led by consumer spending and business investments, made up for a 0.1 percent dip in exports, which reflected the decelerating growth in the world economy. Capital investments rose 1.5 percent for the third straight quarterly gain as firms poured more money into manpower-saving investments to cope with the labor-supply shortage.
However, it's doubtful that the strong consumer spending will be sustained once the special effects of the extended Golden Week holiday wear off — and given the underlying weakness in private spending and the consumption tax hike to 10 percent in October, which was twice postponed to avert negatively impacting the economy. Also, it remains to be seen whether the business appetite for more domestic investment will be sustained at a time when exports bound for Asian markets are taking a hit from the slowdown in China's economy amid the trade dispute with the U.S.