Japan's economy shrinks for the first time in a year under US tariff pressure

**Source: The Paper**  

**Japan's Economy Contracts for First Time in a Year, With Slowdown Worse Than Expected**  

Latest data shows Japan's economy has contracted for the first time in a year, with the decline exceeding expectations, highlighting the fragility of its recovery. Compounding the challenges, Japan's economy is also under threat from U.S. President Donald Trump's trade policies.  

According to Xinhua News Agency, Japan's Cabinet Office reported on May 16 that the country's real GDP for Q1 2025 fell by 0.2% quarter-on-quarter, or an annualized 0.7%. Additionally, Japan's exports saw a significant drop.  

CNBC reported that the release of Japan's latest GDP figures comes as the country engages in trade negotiations with the U.S. However, preliminary talks between the two sides have so far failed to yield a decisive agreement. The Bank of Japan (BOJ) has warned that U.S. tariff policies could exert downward pressure on Japan's economic activity and prices.  

On May 13, the BOJ cautioned that Japan's economic growth may slow due to global trade impacts. The central bank stated, "A negative demand shock is expected, including the effects of heightened uncertainty on corporate fixed investment and household consumption, reduced exports to the U.S., and deteriorating profitability for Japanese exporters."  

Reuters reported on the 16th that Japan's GDP data underscores the challenges facing policymakers. Against the backdrop of high U.S. tariffs, the outlook for Japan's export-driven economy has darkened, particularly for its pillar automotive industry.  

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, analyzed that the current economic data may trigger calls for increased fiscal spending. He also suggested Japan's economy could contract again in Q2, depending on when tariff impacts intensify.  

The global trade war sparked by U.S. tariffs has rattled financial markets and complicated the BOJ's decisions on when and by how much to raise interest rates.  

Last year, Japan ended a decade-long stimulus program. In January, the BOJ raised rates to 0.5%, signaling readiness to further increase borrowing costs if a moderate recovery sustains progress toward its 2% inflation target. However, due to concerns over a global slowdown from Trump's tariffs, the BOJ sharply downgraded growth forecasts at its April 30-May 1 policy meeting and cast doubt on whether sustained wage growth would support consumption and the broader economy.  

Despite growth worries, the BOJ appears poised to continue tightening. Some board members believe the 2% inflation target remains achievable, and further rate hikes could follow if economic and price conditions align.  

Analysts say weak GDP data may also pressure Prime Minister Shigeru Ishiba to heed lawmakers' demands for tax cuts and new stimulus measures.  

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