During this timeframe, Japan’s Gross Domestic Product (GDP) decreased by 0.2% compared to the previous quarter, marking the first quarterly drop since the January-March period in 2024.
On a year-over-year basis, Japan’s economy contracted by 0.7%, far exceeding the expected 0.2% contraction.
Decline in Exports and Impact of Tariffs
The primary cause of the decline was a decrease in exports, which are crucial for Japan’s economy. Data suggests that the demand for exports had been declining even before US President Trump announced extensive tariffs.
On April 2, the US implemented a 24% tariff on Japanese goods and an additional 25% levy on cars, affecting Japan’s auto industry, its largest export market to the US.
These tariffs, set to take effect in July unless a deal is reached, have contributed to heightened uncertainty, according to BNP Paribas chief economist Ryutaro Kono.
Japan has been attempting to negotiate a trade deal with the US, but policymakers have found it challenging to devise a response due to Trump’s unpredictable stance.
Risk of Recession
Japan’s economy, already vulnerable due to its aging population and limited labor force, has been further weakened by the decline in exports and consumption.
Despite the Japanese central bank’s previous policy of negative interest rates aimed at stimulating the economy, rates have begun to rise gradually.
“Japan lacks a driver of growth, given the weakness in exports and consumption. It’s very vulnerable to shocks such as those from Trump tariffs,” Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, told Reuters.
“The data may lead to calls for increased fiscal spending,” Shinke stated, adding that “the possibility of the economy entering a recession cannot be ruled out, depending on the extent of downward pressure caused by the tariff issue.”
Edited by: Wesley Rahn?
