Japan is still expected to feel the economic aftershocks of the Middle East crisis, even after the United States and Iran agreed to a memorandum aimed at ending their hostilities.
The immediate geopolitical threat has eased, but crude oil and naphtha bought at elevated prices are likely to keep feeding through to domestic costs, while the repair of disrupted logistics networks could leave a longer mark.
Uncertainty also remains, as the situation could still turn depending on how future US-Iran negotiations proceed.
The economy entered the crisis with momentum.
Real gross domestic product grew at an annualised 1.8 per cent in the January-March quarter of 2026 from the previous quarter, before the full consequences of the regional tensions were felt.
That strength was quickly undermined when the Strait of Hormuz was effectively shut, sending crude prices higher and raising procurement concerns.
Corporate sentiment and consumer confidence then weakened rapidly.
The deterioration was reflected in Japan’s May Economy Watchers Survey, which tracks people working in sectors sensitive to shifts in economic conditions.
Its outlook diffusion index for the next two to three months stood at 40.7, far below the 50 line separating expansion from contraction.
