Japan's economy cools on weak capex in Q1, revised data shows

TOKYO - Japan's economy lost momentum in the January-March quarter from the previous three months over sluggish capital expenditure, revised gross domestic product (GDP) data showed on Monday, pointing to challenges ahead due to the Middle East conflict.

The GDP figures released by the Cabinet Office showed the economy expanded an annualised 1.8% in the first quarter, compared with the initially estimated 2.1%. Economists' median forecast was for 1.3% growth.

Without annualisation, GDP grew 0.5%, slightly better than the median forecast for a 0.3% expansion and matching the preliminary figure.

Private consumption, which accounts for more than half of Japan's economy, increased 0.3%, also matching the initial data.

Businesses' capital expenditure shrank 0.7% in the first quarter, revised down from the initial estimate for a 0.3% rise and compared with an estimated 0.9% drop.

External demand, or exports minus imports, added 0.3 percentage point to GDP, unchanged from the preliminary data. Domestic demand contributed 0.2 of a percentage point, also matching the initial figure.

Japanese Prime Minister Sanae Takaichi's government on Wednesday finalised a $19 billion supplementary budget for this fiscal year to cushion the impact of rising energy costs on households from the Middle East crisis.

U.S.-Israeli strikes on Iran in late February and Tehran's effective closure of the Strait of Hormuz, which normally carries a fifth of global oil and gas, have sent prices soaring and raised fears of a major disruption to energy flows.

Japan's heavy reliance on Middle Eastern oil leaves it acutely exposed. Rising fuel costs are stoking inflation, eroding household purchasing power and tightening corporate margins, heightening the risk of a severe economic downturn if disruptions persist.

The Bank of Japan will hold a two-day policy meeting next week. Sources told Reuters the bank is expected to raise interest rates this month unless a sharp escalation in the conflict roils markets.

(Reporting by Satoshi Sugiyama; Editing by Sam Holmes)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 7, 2026 at 7:08 PM.