Japan’s economy shrinks as Trump’s trade war hits exports and shakes confidence
TOKYO: The Japanese economy contracted at an annual rate of 0.7% in the first quarter, according to government data released on Friday, as US President Donald Trump’s trade war hurt exports and dented consumer confidence.
Japan’s real gross domestic product, or the measure of a nation’s goods and services, shrank by a greater-than-expected 0.2% in January–March compared to the previous quarter, marking the first contraction in a year, the Cabinet Office’s seasonally adjusted preliminary data showed.
Exports declined at an annual rate of 2.3%. Consumer spending remained flat, while capital investment grew by 5.8%.
Trump’s tariffs are likely to harm Japan’s major exporters, especially automakers, not only for products shipped from Japan but also from other nations such as Mexico and Canada. Officials acknowledge that planning a response is challenging because Trump keeps changing his stance.
“Regional automakers face increased operating costs and potential revenue losses because their US sales depend on diverse production bases and supply chains,” S&P Global Ratings said in a report.
“Even companies with minimal sales in the US could face indirect but meaningful impacts as tariffs affect the global economy and consumer demand,” it said.
The Japanese economy has been struggling for years, plagued by weak demand as the population ages and declines, with more people staying single and having fewer children.
The Bank of Japan, which kept interest rates at zero or negative levels for years, has been gradually raising the benchmark rate, noting that wages are holding up and prices are gradually rising.
The latest findings, which seem to highlight the fragility of the economy, make it more likely that the central bank will hold off on further rate hikes.
Some analysts are advocating lowering the 10% consumption tax, which is similar to the sales tax in other nations, to help alleviate economic hardship.
But so far, Prime Minister Shigeru Ishiba has not expressed support for the idea. Japan’s national finances are under severe strain due to ballooning social welfare costs.
The economy grew at an annual rate of 2.4% in the last quarter of 2024.
By RSS/AP
