Japan GDP Revision Explained: Why Q2 Growth Was Upgraded to 2.2% and What It Signals for 2025

Japan just logged a sturdier-than-expected spring rebound. Revised national accounts show real GDP expanding at a 2.2% annualized rate in the April–June quarter, more than double the initial 1.0% estimate and ahead of consensus. On a quarterly basis, output rose 0.5% versus the earlier 0.3% reading. The upgrade rests on two pillars: a firmer consumer and a better-than-assumed inventory profile. Private consumption, which accounts for over half of the economy, was marked up to a 0.4% gain as out-of-home services—from dining to entertainment—continued to normalize. Inventories added a small but notable tailwind after being a drag in the flash report.
Under the hood, the capex signal is more cautious. Business investment was revised down to a 0.6% increase, a reminder that corporate outlays are still feeling the pinch of uncertain demand and tighter profit margins in globally exposed sectors. Net trade helped, with exports outpacing imports enough to deliver a positive contribution to growth, even as tariff headwinds and softer demand in key markets linger. In other words, the composition is better, but not unequivocally strong across all cylinders.
Policy watchers will parse what this means for the central bank’s glidepath. A stronger consumption base improves the narrative that domestic demand can carry more weight, especially as negotiated wage gains filter through to pay packets. At the same time, cooler capex and political cross-currents argue against rushing normalization. The base-case view is that policymakers keep optionality: acknowledge the upside surprise, stress data dependence, and look for corroboration in third-quarter indicators before adjusting the stance.
Markets have already started to express that nuance. Domestically oriented equities gained a reputational boost from the consumption revision, while rate markets stayed broadly anchored, reflecting confidence that policy will move methodically rather than mechanically. For currency traders, the growth upgrade is supportive at the margin, but interest-rate differentials and global risk appetite remain the dominant drivers of yen performance. If the global disinflation trend persists and major central banks lean toward easing, the yen’s path will depend as much on abroad as at home.
What should investors watch next? Three things. First, the breadth of consumer strength—does spending extend beyond services into durables without leaning on credit? Second, capex intent—machine orders and corporate surveys will reveal whether firms are shifting from maintenance to expansion. Third, the external pulse—export orders and logistics indicators will show if tariff uncertainty and slower global demand are being offset by resilient niches like autos and precision machinery. If those pieces line up, today’s revision will look less like an accounting quirk and more like the start of a sturdier growth phase.
Bottom line: the 2.2% upgrade gives Japan a firmer footing heading into the second half of 2025. It strengthens the case for a gradual, confidence-building policy path, while keeping a spotlight on wages, investment, and trade as the decisive swing factors for the year’s final quarter.