Tokyo: Japan’s economy shrank an annualized 1.8% in the July-September quarter, the first contraction in six quarters. Exports fell sharply due to new US tariffs. Economists see the setback as temporary rather than a full recession.
The quarterly contraction came in at 0.4%, slightly better than the median market estimate of 0.6%. Growth in the previous quarter had been revised up to 2.3%. Analysts said one-time factors, including housing investment changes, contributed heavily to the slowdown.
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Exports were the main drag, especially for automakers, who faced plunging shipment volumes. Some absorbed tariff costs by lowering prices. Net external demand reduced growth by 0.2 percentage points, compared to a 0.2 point boost in the prior quarter.
Private consumption grew only 0.1%, reflecting high food costs that restrained household spending. Capital spending rose 1%, exceeding expectations. Economists predict the economy could rebound in the October-December quarter with a projected 0.6% expansion.
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The slowdown may influence the Bank of Japan’s interest rate plans. Meanwhile, Prime Minister Sanae Takaichi’s government is preparing a stimulus package to ease household pressure from rising living costs. Analysts say careful policy measures may support a gradual recovery.