Japan's economy expanded at an annualized rate of 1.1% during the April-June quarter, according to government data released Monday. This growth occurred despite stagnant private consumption and a slowdown in export growth.

The nation's real gross domestic product (GDP) saw a seasonally adjusted increase of 0.3% from the first to the second quarter of 2026. This figure is lower than the 2.1% annualized growth recorded in the January-March period.

Private spending, a key component of economic activity, decreased by 1.2% in the April-June quarter compared to the previous three months. Exports, while growing, saw their expansion slow to 0.5%. The growth in exports was primarily driven by global demand for Japanese automobiles and semiconductors, sectors where Japan holds significant manufacturing power with companies like Toyota Motor Corp. and Honda Motor Co.

The global demand for computer chips, fueled by interest in artificial intelligence, has provided some support for Japan's export sector. Government consumption, however, rose by a more robust 1.6% during the same period.

Analysts had anticipated stronger quarterly GDP growth. The Japanese economy has faced headwinds from the ongoing conflict in Iran, which has caused energy costs to surge. As a nation that imports nearly all of its oil, Japan is particularly vulnerable to such price hikes. The conflict has also disrupted vital shipping routes like the Strait of Hormuz, impacting oil exports from the Persian Gulf to Asia and contributing to higher global oil prices. Brent crude has recently traded around $88 a barrel, a significant increase from approximately $65 a year ago.

A weak yen has presented a dual effect on the Japanese economy. While it boosts the value of overseas earnings for large exporters like Toyota when translated into yen, it simultaneously makes imported raw materials more expensive. This rise in import costs can lead to increased prices for consumers and dampen domestic spending.

Concerns about rising prices have intensified, exacerbated by relatively stagnant wage growth in Japan. Prime Minister Sanae Takaichi has pledged to stimulate economic growth, though her public support ratings have been gradually declining.

The U.S. dollar has been trading at approximately 160 Japanese yen, a notable increase from around 145 yen a year ago. Following the release of the economic data, the dollar was trading at about 159 yen.

The Bank of Japan recently revised its economic growth outlook for the fiscal year ending March next year upward to 0.6%, from a previous forecast of 0.5%.