Japan's economy grew at an inflation-adjusted annual rate of 3.1 percent in the April-June quarter, boosted by a recovery in private consumption and capital spending as the negative impact of a safety data scandal in the auto sector eased, government data showed Thursday.
Real gross domestic product marked the first increase in two quarters, rebounding from a sharp contraction in the first three months of 2024. On a nominal basis, Japan's GDP topped 600 trillion yen ($4 trillion) for the first time, amid persisting inflation caused by a weakening yen.
The stronger-than-expected GDP data is seen as a boost to the Liberal Democratic Party-led government, which under Prime Minister Fumio Kishida has devoted efforts to easing the pain of inflation felt by households. Kishida abruptly announced Wednesday he would not seek reelection as leader of the ruling party, ending his premiership in September.
GDP is the total value of goods and services produced in a country. Real GDP rose 0.8 percent from the previous quarter.
The easing of the impacts of the auto scandal supported both domestic demand -- private consumption and capital investment -- and exports in the GDP data.
Still, rising prices of everyday goods have weighed heavily on consumers, calling into question whether domestic demand can remain solid.
Private consumption, which accounts for more than half of GDP, increased 1.0 percent, after four straight quarters of decline, matching a losing streak seen in the aftermath of the 2008 financial crisis. The increase reflected strong demand for cars and clothing and more people dining out.
Capital spending rose 0.9 percent, marking the first gain in two quarters. Japanese firms remain proactive about ramping up investment to boost output and to tackle acute labor shortages with the use of automation.
According to the Cabinet Office data, exports increased 1.4 percent, helped by U.S.-bound auto shipments.
"The good news is that private consumption rebounded and is expected to remain on a recovery trend as consumers will get support from pay hikes and the tax cut (implemented in June)," said Saisuke Sakai, a senior economist at Mizuho Research & Technologies Ltd.
"That said, private consumption has yet to recover to pre-COVID levels and there is uncertainty over whether positive pay and price hikes will strengthen going forward. Ordinary people are not feeling the benefits of the economy scaling 600 trillion yen," he said.
Kishida has underscored the need for Japanese firms to raise wages to support households. Real wages, which take into account the impact of inflation, rose for the first time in over two years in June, a positive development for consumption.
Coupled with a 40,000 yen income and residence tax reduction as a temporary inflation-relief measure, economists are keeping tabs on whether wages can sustain their upward momentum.
Strong wage growth was one of the important factors that prompted the Bank of Japan to raise interest rates for a second time this year in July.
Kishida's support ratings have sunk due partly to public discontent with his handling of the cost of living crisis despite his focus on wealth redistribution.
"It is a number indicative of Japan's transition to a growth-oriented economy, led by wage growth and investment. We will continue to follow developments closely," Kishida told reporters when asked about nominal GDP surpassing 600 trillion yen.
Nominal GDP increased 1.8 percent, or at an annualized rate of 7.4 percent.
Japan's economy totaled 607.90 trillion yen, about a decade after the government set a target of boosting it to 600 trillion yen or more under former Prime Minister Shinzo Abe.
On a nominal basis, Japan lost its status as the world's third-largest economy in 2023 to Germany just as the value of the yen tumbled, partly due to the nation's declining global competitiveness.
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