Japan’s Economy Shrinks for the First Time in 6 Quarters as Tariffs Hit Exports

Post by : Saif

Japan’s economy has shrunk for the first time in one and a half years. New government data shows that the country’s GDP fell by 1.8% between July and September. The main reason for this fall was the sharp drop in exports after the United States increased tariffs on many Japanese goods. Car companies were hit the hardest, as the higher prices made buyers less willing to purchase Japanese cars.

Automakers had increased shipments earlier, hoping to avoid the impact before the tariffs began. But once the new tariff rules came into effect, exports fell quickly. Many companies cut their prices to absorb the extra costs, but the drop in demand still affected the economy. Net exports took away 0.2 percentage points from Japan’s growth this quarter.

Even though the numbers look weak, many economists believe this fall is temporary. They say it does not mean Japan is going into a long recession. Some experts point out that one-time issues, such as new housing rules and the sudden tariff changes, were the main reasons for the economic slowdown.

Private spending in Japan also remained soft. Consumer spending grew only 0.1% in the third quarter, much lower than the 0.4% growth seen earlier. Families are cutting back on buying because food prices are still high. Housing investment also fell because new energy-efficiency rules started in April, which slowed down new building plans.

There was some good news as well. Business investment grew by 1.0%, much higher than expected. Many companies are spending more on equipment and technology. Japan’s economic minister said this shows the economy is still on a moderate recovery path despite the challenges.

The weak growth numbers have started a debate on what the Bank of Japan should do next. Some advisers close to Prime Minister Sanae Takaichi say the central bank should not raise interest rates in December. They believe raising rates now would harm the already weak economy. Other economists say the BOJ will look more at inflation and long-term trends and may not react strongly to this one quarter of decline.

Many experts expect the economy to recover in the October to December period. A survey of 37 economists predicts that Japan will grow by 0.6% in the final quarter of the year. The government is also preparing a new stimulus package to help families deal with the rising cost of living. Advisers say the recent GDP drop shows why strong support measures are needed.

Overall, Japan is facing pressure from both outside and inside. U.S. tariffs have hurt exports, while high prices have made families cautious about spending. But economists believe this slowdown is temporary. With government support and rising business investment, the economy may start improving again soon.

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