Japan confounded downbeat economic predictions by growing faster than naysayers had predicted in the second quarter of 2019, registering a third straight quarter of gross domestic product expansion.

Year-on-year, the GDP of Asia’s No 2 economy grew 1.8% in the April-June period, according to preliminary data from Tokyo’s Cabinet Office, Reuters reported from Tokyo.

The figures marked a quarter-on-quarter slowdown following a revised 2.8% GDP gain for the January-March period, but handily outpaced a median forecast of economists polled by Kyodo News who predicted only 0.7% growth.

Better than anticipated

Downbeat analyses that the trade war raging between Japan’s two biggest trade partners, China and the United States, would impact Japan’s export machine were borne out – external demand was down 0.3%. Exports fell 0.1% in April-June – though that was a recovery from the 2.0% slump in the previous quarter.

However, the grim trade picture was more than compensated for by domestic demand, which added 0.7% to GDP growth.

Private consumption, which takes up some 60% of the economy, rose 0.6% from the first quarter. Capex rose 1.5%, nearly double the pace of increase projected by analysts and accelerating from a 0.4% rise in January-March.

The Shinzo Abe administration has prioritized inbound tourism and with the Rugby World Cup to come this year and the 2020 Summer Olympics on schedule for next year, construction has been brisk, thanks to rising demand for accommodation and leisure facilities, analysts told Reuters.

Choppy waters ahead

Even so, not all is sunny.

Internally, consumer confidence and spending was expected to be impacted by a much-anticipated October rise in sales tax, from 8% to 10%. Moreover, the second quarter’s rise in consumer spending was buoyed both by a 10-day national holiday and by savvy consumers pre-buying before October’s tax rise, according to Bloomberg.

Externally, the trade hostilities between Beijing and Washington continue to rage with no end in sight. Meanwhile, a new and bitter dispute over export controls between Seoul and Tokyo – which has already led to boycotts of Japanese consumer products and travel to the island nation by South Koreans – could flare further.

That would damage long-healthy relationships between complementary companies in both economies, which are held hostage to their respective administrations’ diplomatic-historical feud.

A strong yen is a further factor weighing upon Japanese exports. But with US President Donald Trump lambasting China for allegedly weakening the yuan, Tokyo authorities have limited room to maneuver.

With additional reporting by agencies