Japan’s economy contracted less than expected in the first quarter of 2025, despite sluggish consumer spending and a sharp drop in exports driven by global trade tensions. Official data released Monday showed that gross domestic product (GDP) declined by 0.2% year-on-year in the January-March period, better than the earlier estimate of a 0.7% contraction. Still, the figure marked a sharp reversal from the 2.4% growth recorded in the previous quarter.
On a quarterly basis, GDP remained flat, improving from a prior estimate of a 0.2% drop. The modest upgrade was primarily due to revised data on private consumption, which showed a slight 0.1% quarter-on-quarter increase instead of a previously flat reading. However, business investment was revised lower to 1.1% from 1.4%, signaling weaker corporate confidence.
Japan’s external demand remained weak, falling 0.8%, in line with initial projections. Exports were hit hard by U.S. President Donald Trump’s sweeping tariff measures, which included a 10% blanket tariff on imports and additional levies on cars and select commodities. The export slowdown was compounded by softening demand from key markets such as China.
A stronger yen added to the pressure on exports, as the currency appreciated due to a hawkish Bank of Japan stance and heightened safe-haven buying amid global uncertainty.
The revised GDP data suggests Japan’s economic momentum is fading after a resilient 2024. With growth faltering and external risks mounting, the Bank of Japan may be forced to rethink any near-term rate hikes, despite recent hawkish signals. Sluggish consumer demand and trade headwinds continue to cloud the outlook for Asia’s second-largest economy.
