Japan’s economy contracted by 0.2% in the first quarter of 2025, marking its first quarterly decline in a year, according to preliminary figures released Friday by the Cabinet Office. The worse-than-expected data comes as the country grapples with weakening exports, rising imports, and ongoing uncertainty over global trade tensions.
The contraction between January and March followed 0.6% growth in the final quarter of 2024. Analysts had predicted a more modest decline of 0.1%, but the final figure indicates a sharper slowdown in economic activity. On an annualised basis, gross domestic product (GDP) fell by 0.7% during the quarter.
Japan, the world’s fourth-largest economy, is particularly vulnerable to shifts in global trade dynamics. The latest data shows exports fell 0.6% while imports rose 2.9%, a combination that significantly dragged down overall GDP. The imbalance reflects both sluggish overseas demand and rising energy costs.
Analysts attribute the slowdown in part to trade tensions driven by U.S. President Donald Trump’s tariff policies. Japan has been engaged in negotiations with Washington in hopes of securing relief from steep levies, particularly on steel and automotive exports.
“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,” said Ryutaro Kono, chief economist at BNP Paribas. He warned that capital investment—typically a strong contributor to growth—could come under pressure as companies hesitate to spend amid an unpredictable global outlook.
The Bank of Japan (BoJ) recently cut its forecast for economic growth in the current fiscal year to 0.5%, down from an earlier projection of 1.1%. It held interest rates steady, citing growing risks from the global economy and continued sluggishness at home.
“With the economy already shrinking on the eve of the trade war, the Bank of Japan will probably wait even longer before resuming its tightening cycle than we had anticipated,” said Marcel Thieliant, senior economist at Capital Economics.
Japan’s structural challenges extend beyond trade disputes. Domestic demand remains weak and demographic pressures—such as an ageing population and low birth rates—continue to weigh on long-term growth prospects.
“The economy remains without a driving force,” said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute. “The possibility of the economy entering a recession cannot be ruled out.”
While recent U.S.-China tariff negotiations have led to some easing, Japanese economists remain cautious about any near-term rebound, with many calling for stronger domestic policy measures to stimulate growth.
