· April-June GDP grew at an annualized rate of +6.0%, +1.5% YoY

· Exports drove Q2 GDP growth, but weak domestic demand undermined optimism as private consumption spending unexpectedly fell

· Solid GDP is good news for policymakers

Japan's economy expanded for a third consecutive quarter from April to June, despite the prospect of a global recession clouding the outlook, as strong auto exports and tourist arrivals offset the drag of a slower consumer recovery after the epidemic.

Economists polled by Reuters had previously expected the world's third-largest economy to grow 3.1 percent in the April-June quarter. The impressive gross domestic product (GDP) translated into a more modest quarterly growth of 1.5%, above the 0.8% growth forecast.

Prior to that, the economy grew at a revised 3.7% in the first quarter, the fastest rate since the last quarter of 2020.

The solid GDP data came as a relief to policymakers seeking to balance economic growth with sustainable inflation and stable wage growth.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, said the export-driven growth momentum was unlikely to last.

Thieliant said, "While capital goods exports rebounded in June as the biggest drop in overseas investment has passed, we do not expect a strong recovery."

Looking at the major subsectors, private consumption, which accounts for more than half of the economy, fell 0.5 percent from a year earlier between April and June as higher prices hurt sales of food and household appliances.

Exports rebounded 3.2% from the previous quarter (largely driven by a surge in automobile shipments), while imports plunged 4.3% over the same period.

With imports falling for the third consecutive quarter, external demand (i.e. net exports) contributed a 1.8ppt increase to Q2 growth, while domestic demand declined by 0.3ppt, and weak capital spending indicated weak domestic demand.

The Bank of Japan took steps last month to allow long-term interest rates to rise further, a move that analysts see as the beginning of a gradual abandonment of massive monetary stimulus.

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