TOKYO: Japan's economy contracted 0.2 percent between January and March, the first quarterly drop in a year, according to cabinet office data released Friday.
The world's fourth-largest economy is trying to negotiate relief from punishing US trade tariffs as it seeks to shake off stagnation that has long plagued the country.
Friday's preliminary figure for quarter-on-quarter GDP was worse than market expectations of a 0.1 percent contraction.
It marked a slowdown from growth of 0.6 percent in October-December. The last time the Japanese economy shrank was in January-March 2024 -- when it contracted 0.4 percent.
Exports, which fuel Japan's growth, were down 0.6 percent while imports jumped 2.9 percent, weighing on overall GDP.
On an annualised basis, GDP shrank 0.7 percent in the first quarter.
Ahead of the data release, analysts warned that Japan will face headwinds as US President Donald Trump's levies roil the global economy.
“Ucertainty 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 BNP Paribas chief economist Ryutaro Kono.
That will likely weigh on corporate spending such as capital investment and drive down demand for capital goods,“ such as machinery and tools, he said.
Katsutoshi Inadome of SuMi TRUST noted that “with recent negotiations between US and Chinese officials concluding with lower tariffs, we hope that this will ultimately mitigate their economic impact”.
Trump's hardball campaign to rectify what he says are unfair trade imbalances includes tariffs on trading partners and imports including steel and automobiles.
But Japan's economic woes run deeper than the trade war.
With domestic and foreign demand flagging, its 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, depending on the degree of downward pressure caused by the tariff issue,“ he warned ahead of Friday.
Earlier this month the Bank of Japan revised down its growth forecasts and held interest rates steady, warning that trade tariffs are fuelling global economic uncertainty.
The BoJ said it now expects Japan's GDP to rise 0.5 percent in the fiscal year that started in April -- down from its previous estimate of 1.1 percent.
“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,“ Marcel Thieliant at Capital Economics said Friday.
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