Japanese Economy Grinds Out Modest Growth Despite War-Related Headwinds
The Japanese economy has managed to eke out modest growth in the second quarter, despite the challenges posed by the Iran war. According to official data released on August 17, 2026, gross domestic product (GDP) grew by 0.3 percent between April and June. This is lower than the market expectations of 0.5 percent.
The weak yen has led to higher oil prices, causing a surge in Japan's import bill and contributing to inflation. The Bank of Japan was expected to hike interest rates soon due to accelerating inflation, which could have lifted the value of the yen. However, the joint market intervention by the United States and Japan earlier this year has not had a lasting impact on the currency.
Prime Minister Sanae Takaichi's government has implemented various measures to support voters, including a massive stimulus package in 2025 and energy tax rebates. The government has also approved further aid and plans to slash consumption tax on food products from eight percent to one percent starting next April.
NLI Research Institute economist Taro Saito attributes the weak growth to a decline in imports due to difficulties transiting the Strait of Hormuz, which has been affected by the Iran war. He noted that 'the growth is not due to a robust economy but due to a decline in imports.'