In a second quarter of 2024 filled with global economic gloom, Japan’s economy proved unexpectedly robust. It has grown at a compounded annual growth rate of 1%. Japan’s GDP grew more than expected, beating the consensus 0.1% growth forecast by economists surveyed by Reuters. This growth happened in the face of enormous obstacles, such as a 15% blanket tariff on all exports to the United States and a crippling 25% duty on its automobile industry.
In real terms, Japan’s GDP in Q1 of 2024 just managed to inch out a positive growth at +0.1%. In the second quarter, that streak imploded, rocketing to a year-over-year increase of 1.2%. This improvement is a biggie. In comparison, during this same period, auto exports to the United States accounted for just 28.3% of all auto-mileage shipments. The automobile industry, a key pillar of Japan’s economy, has come under enormous stress this quarter. It battled tariffs and fought to chart a course through a sudden and dangerous trade landscape.
Just on July 23, Japan finalized a trade agreement with the United States. This deal brought some much needed relief from these pending tariff pressures. Before this agreement, Japan’s economy was under serious pressure from the uncertainty of trade relations. Click to enlarge The extensive and complicated negotiation of this deal still likely deserves some credit for creating a better economic outlook.
Notably, net exports were a major driver of Japan’s GDP growth in the second quarter, adding in a substantial 0.3 percentage points. This shows that even with the tariff pressures, Japanese goods were in high demand abroad. Additionally, Japan escaped from a 24% tariff that was declared on “Liberation Day” that day, which further protected its ability to export.
The Bank of Japan has raised its economic outlook for the country. For the fiscal year 2025, which begins in April 2025 and ends in March 2026, it has slashed its expected growth rate down to just 0.6%. This optimism belies deep and pragmatic confidence in Japan’s capacity to overcome the persistent trade headwinds it faces, and to build upon its industrial advantages.