Japan’s economy grew more than expected in the second quarter, helped by strong household and business spending and recovering from an earlier contraction, but global trade tensions loom as major risks to the export and investment outlook.The rebound in consumer spending is a welcome development for the Bank of Japan but unlikely to be enough to change its stance that interest rates need to stay low for a very long time to end the country’s deflationary mindset.While analysts expect the economy to sustain a recovery, some expect escalating global trade disputes will hurt the export and manufacturing sector, major drivers of growth in the world’s third largest economy.“Things are going well, but given questions around trade friction between the United States and China, there is a lot of uncertainty whether things will continue to go well,” Finance Minister Taro Aso said.Japan’s economy expanded 1.9 percent on an annualised basis in April-June, beating a median market forecast for a 1.4 percent increase, government data showed on Friday.That followed a revised 0.9 percent contraction, larger than initial estimates, in the previous quarter, which put an end to the best run of growth since the 1980s bubble economy.Compared with the previous quarter, gross domestic product (GDP) rose 0.5 percent, more than the median estimate for a 0.3 percent increase and following a 0.2 percent contraction in January-March.In a sign the economic recovery was broadening, domestic demand was the main driver of growth. Private consumption, which accounts for about 60 percent of the economy, was the biggest contributor, rising 0.7 percent on brisk demand for cars and home appliances, the data showed.The gain was more than the median estimate for a 0.2 percent increase and marked a rebound from a revised 0.2 percent fall in the first quarter, it showed.“For the third and fourth quarters, we’ve pencilled in similar growth to the second quarter, but the risks are a bit to the downside,” said Marcel Thieliant, senior Japan economist at Capital Economics.“The economy is running into capacity constraints. We are quite certain there will be some sort of tariffs on Japanese cars. It’s a question of how much.” Many industries face labour shortages due to a rapidly ageing population. This helps push up wages but has also caused capacity constraints because some companies are shortening operating hours due to a lack of workers.Japan certainly needs higher consumer spending to push up inflation, but with consumer prices taking so long to rise, economists have pushed back the timeframe in which they expect the BOJ to unwind monetary easing until 2020 or later, a Reuters poll on Thursday showed.Capital expenditure rose 1.3 percent, exceeding market forecasts for a 0.6 percent increase and marking the biggest gain since October-December 2016.The external environment, however, was less favourable, even without any direct impact to exports from increasing trade hostilities between the United States and its major trading partners over the quarter.External demand, or exports minus imports, subtracted 0.1 percentage point from growth, missing expectations for a 0.1 percentage point contribution.Published in Daily Times, August 11th 2018.