Japan’s economy expanded at an annualized rate of 1.8% in Q1 2026, revised lower from the preliminary estimate of 2.1% but still exceeding market expectations of 1.3%. Growth also accelerated from a downwardly revised 0.7% increase in Q4, marking the strongest annualized rise in four quarters. Private consumption strengthened, while public investment rose for the first time in three quarters, supported by higher infrastructure and reconstruction-related spending. Government expenditure increased for a fourth consecutive quarter, although the pace slowed slightly from the prior period. Net trade also made a solid positive contribution to growth, driven by stronger exports. In contrast, business investment contracted after expanding in Q4, as elevated borrowing costs and softer corporate sentiment dampened firms' appetite for capital spending. Meanwhile, uncertainty surrounding the Middle East conflict may weigh on economic activity in the quarters ahead.