Pedestrians walk past a stock quotation board showing the Nikkei share average outside a brokerage in Tokyo, Japan, May 7, 2026. [Photo/Agencies]
Japan's economic outlook is facing growing uncertainty as elevated global oil prices and instability in the Middle East continue to fuel inflation and weigh on domestic demand, analysts said.
Data released by Japan's Cabinet Office on Tuesday showed the country's real gross domestic product expanded at an annualized rate of 2.1 percent in the first quarter, above market expectations of around 1.6 percent, marking a second consecutive quarter of growth.
Despite the stronger-than-expected GDP growth, Japanese financial markets weakened following the data release, with the benchmark Nikkei 225 index falling 0.64 percent, while yields on 10-year Japanese government bonds edged higher. The yen also weakened slightly against the US dollar to 158.95.
Economists warned that the impact of rising oil prices and tensions between the United States and Iran is likely to become more visible from the second quarter onward.
