On August 15, the Cabinet Office released the first preliminary GDP estimate for April-June 2025. Exports rose 2.0% (in real terms, hereafter the same) and capital investment increased 1.3%, both driving overall growth. As a result, GDP grew at an annualized rate of 1.0%, marking the fifth consecutive quarter of growth. The stock market also remained strong, with the Nikkei Stock Average closing at 43,714.31 on the 18th, renewing its record high following last Friday’s close. This is partly because the yen has been trending weaker in the currency market, but also because the tariff talks with the United States have reached a tentative conclusion, reducing uncertainty about the outlook and encouraging a “buying” trend.

That said, concerns persist. Small and medium-sized enterprises continue to face tough conditions. The structural labor shortage, needless to say, has been severe, and in addition, recession-induced bankruptcies are now on the rise. While exports of electronic components and parts to Asia boosted GDP in the April-June quarter, exports to the US, particularly automobiles, prioritized maintaining trade volumes by cutting prices to offset the tariff increase. If major companies continue their “self-sacrificing strategy,” it could gradually deliver a body-blow effect across the entire supply chain, hitting subcontractors with weak financial foundations the hardest. The companies at the top of the supply chain are encouraged to invest in expanding the pool of resources available for distribution.

Meanwhile, private final consumption expenditure, which accounts for 53% of GDP, rose by 0.2%, marking its fifth consecutive quarter of growth. And yet signs of strong growth are scarce. Household final consumption expenditure (excluding imputed rent on owner-occupied housing) increased by only 0.1%, down from a 0.2% rise in the January-March quarter. The Household Expenditure Survey for April-June (conducted by the Ministry of Internal Affairs and Communications) also showed a wide gap between real and nominal consumption (for all households: a 0.7% increase in real terms versus a 4.7% increase in nominal terms), indicating that wage growth has not been sufficient to keep pace with rising prices.

Summarizing the April-June quarter, external demand (a positive 0.3% contribution) drove growth, while domestic demand made a negative 0.1% contribution. However, it is difficult to take an optimistic view of external demand beyond the summer. The unexpected “disaster” of Trump tariffs, though reduced from the initial 24% to 15%, stands as a heavy burden. Many export-related companies anticipate a decline in profits for the fiscal year ending March 2026. Although companies are hastily restructuring their businesses in response to U.S. trade policy as a given condition, the full benefits of these changes are likely to materialize in the next fiscal year and beyond. Therefore, the key to growth lies in domestic demand. A full-fledged set of policies to stimulate personal consumption is critically needed.

This Week’s Focus, August 10 - 21, 2025
Takashi Mizukoshi, the President