Japan’s economy shrinks more than expected -DW
Japan‘s economy contracted at a higher page than expected in the first quarter of 2025, according to official data for the January to March period released on Friday.
Japan’s Gross Domestic Product (GDP) contracted by 0.2% compared to the previous quarter, the first quarterly drop since the January-March period in 2024.
However, compared with the same quarter in the previous year, Japan’s economy shrank by 0.7% — much steeper than the forecast 0.2% contraction
Sluggish exports, Trump tariffs
The decline was largely due to a fall in exports, which drive the Japanese economy. Data shows demand for exports was waning even before US President Donald Trump announced sweeping tariffs.
On April 2, the US imposed a 24% tariff on Japanese goods. It also imposed an additional 25% levy on cars. The US is the largest market for Japan’s auto industry.
After a reprieve, the tariffs are due to take effect in July, unless Japan can negotiate a deal.
ALSO READ: Japan, a true Tanzanian ally fostering a partnership for sustainable growth, prosperity
“Uncertainty is greatly heightened by the Trump tariffs, and it is likely that the economic slowdown trend will become clearer from (the second quarter) onward,” BNP Paribas chief economist Ryutaro Kono told AFP news agency.
Tokyo has been trying to negotiate a trade deal with the US, but policymakers have acknowledged its has been difficult to plan a response as Trump keeps changing his mind.
‘Recession cannot be ruled out’
Japan’s economy has been vulnerable for quite some time now, as an aging population balloons welfare spending but limits labor and demand.
The Japanese central bank had long maintained a policy of negative interest rates to boost the economy but began to gradually hike rates last year.
Japan’s economy “lacks a driver of growth given weakness in exports and consumption. It’s very vulnerable to shocks such as one from Trump tariffs,” said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, told Reuters news agency.
“The data may lead to growing calls for bigger fiscal spending,” he said, adding that “the possibility of the economy entering a recession cannot be ruled out, depending on the degree of downward pressure caused by the tariff issue.”
