Japan Economy Contraction: GDP, US Tariffs & Economic Slowdown

Japan’s economy is facing headwinds as analysts predict a contraction for the first time in six quarters. The impact of U.S. President Donald Trump’s tariff policies is being felt, with GDP likely to have shrunk by 2.5% in the July-September period. This marks a significant slowdown from the 2.2% expansion seen in the previous quarter.

The decline in GDP is mainly attributed to a slump in exports, which has been exacerbated by U.S. tariffs. Analysts suggest that external demand has shaved 0.3 percentage points off the GDP, reversing the positive contribution seen in the second quarter. Moreover, factors such as decreased housing and inventory investment have also played a role in the economic slowdown.

While the Japanese economy showed strong growth in the first half of the year, the impact of new tariffs is causing a correction. Private consumption, a key driver of Japan’s GDP, has shown a modest increase of 0.1% in the third quarter, down from 0.4% in the previous quarter. Similarly, capital expenditure growth has remained steady at 0.3%.

The U.S. and Japan agreed on a 15% tariff rate on Japanese imports in July, lower than the initial threats but still significant for industries like automobiles. Real wages stagnating and declining personal consumption are further signs of economic stagnation, according to experts.

The Japanese government is set to release the official GDP data for the July-September period on November 17. The figures will provide a clearer picture of the impact of external factors, such as trade policies, on Japan’s economy. As the country navigates through these challenges, analysts will be closely watching for signs of recovery and resilience in the coming months.