The economy of Japan is the third largest in the world behind those or the USA and China, respectively. In the first quarter of 2018, the Japanese economy contracted by 0.2%, its first quarterly fall in two years. Data released recently shows that the economy returned to growth in Q2 with an expansion of 0.5%. The growth was anticipated, but stronger than expected with most analysts predicting a figure of a 0.3% expansion. The data is the preliminary estimate of Japanese growth and will be subject to two further revisions as more comprehensive data becomes available. The initial estimate represents the best quarterly growth figure since Q3 2017.

The Japanese economy has averaged 0.5% quarterly growth between 1980 and 2018 with a peak figure of 3.2% (Q2 1990) and a record contraction of -4.9% in Q1 2009 as the Global Financial Crisis raged.

The return to growth of the economy has been credited to a strong rebound in household spending and an accelerated rate of business investment. The figures do not show any significant effect from the rising tensions in global trade with the US because it will take time before the effects of higher US tariffs on imported goods (and reciprocal measures from exporting nations) feed fully through into the data.

As a leading exporting nation, Japan is likely to be affected both directly and indirectly by protectionist US policies. However, it recently completed a free trade deal with the European Union which covers almost a third of the world’s GDP in value. Japan is engaged in trade talks with the USA, but has made its position clear that in Japan’s view, the best way to handle trade disputes is on a multi-lateral process through the existing channels. US policy has seen America withdraw from both TPP and the TTIP discussions, however, the appetite of other nations for global and regional trade agreements which reduce of eliminate barriers to trade and tariffs remains strong.