TOKYO, Japan — Japan’s economy expanded faster than expected in the first quarter of 2026, official figures released on Tuesday showed, offering a temporary boost to the government amid growing concerns over inflation and the economic impact of the Middle East conflict.
According to the Cabinet Office data, Japan’s Gross Domestic Product (GDP) grew by 0.5 pc between January and March, slightly above market expectations of 0.4 pc.
The growth was supported by stronger private consumption and increased corporate investment.
The latest figures follow revised growth of 0.2 pc in the final quarter of 2025, down from an earlier estimate of 0.3 pc.
Government weighs stimulus measures
Despite the stronger-than-expected performance, Prime Minister Sanae Takaichi is reportedly considering an additional budget package to shield the economy from rising inflation linked to the Middle East war.
Japan has been facing increased prices for fuel, food, and energy imports, with consumers already feeling pressure from higher living costs.
Government spokesperson Minoru Kihara said authorities are closely monitoring inflation trends and their impact on economic stability.
“Given the continuing uncertainty surrounding the situation in the Middle East, it is important to closely monitor the trend of prices and the impact on the economy,” Kihara told reporters.
Oil dependency raises concerns
Analysts warn that Japan remains highly vulnerable to global energy shocks because the country imports about 95 pc of its oil from the Middle East.
Economists say rising crude oil prices could slow economic activity in the coming months.
Marcel Thieliant of Capital Economics warned that economic growth could “grind to a halt” over the next two quarters due to the conflict’s impact on energy markets and consumer spending.
Inflation outlook revised upward
The Bank of Japan has already revised its inflation forecast upward.
The central bank now expects consumer prices to rise by 2.8 pc during the current fiscal year, compared to its earlier estimate of 1.9 pc.
It also raised next year’s inflation forecast to 2.3 pc.
At the same time, the BoJ lowered its economic growth outlook for fiscal year 2026 from 1.0 pc to 0.5 pc.
The weaker outlook has increased speculation that the central bank could raise interest rates as early as June.
Yen’s weakness adds pressure
Japan has also reportedly spent billions of dollars intervening in currency markets to support the weakening yen.
The currency has remained under pressure due to global uncertainty and widening interest rate differences between Japan and the United States.
A weaker yen makes imports more expensive, especially for a country heavily dependent on imported fuel and food supplies.
Economists warn that continued energy price increases and supply chain disruptions could further weaken household purchasing power and corporate profits in the months ahead.
