Tokyo: Data showing Japan’s economy contracted for the first time in a year in the March quarter on Friday ( May 16 ) revealed the fragility of its recovery, which is now threatened by US President Donald Trump’s trade policies.
The data highlights the difficulty that policymakers must overcome as soaring US tariffs threaten the country’s export-heavy economy’s prospects, specifically for the enduring automotive industry.
Preliminary government data revealed that the real gross domestic product ( GDP ) fell by an annualized 0.7 % in the year to March, which was significantly higher than the median market forecast for a 0.2 % decline. It came after the preceding quarter’s revised 2.4 % increase.
The collapse was brought on by sluggish private consumption and declining exports, which suggested that the economy was losing support from outside need even before Trump’s nnouncing broad “reciprocal” tariffs on April 2.
Given the decline in imports and use, Japan’s economy lacks a growth-strengthening vehicle. According to Yoshiki Shinke, top professional scholar at Dai-ichi Life Research Institute, “it’s extremely vulnerable to shocks like one caused by Trump taxes.”
According to him,” the information may lead to growing calls for more governmental spending,” adding that the market may contract once more in the second quarter based on when the tariff impact becomes stronger.
Comparing the economy’s quarterly decline to market forecasts for a 0.1 % contraction, the economy experienced a 0.2 % contraction.
Private consumption, which accounts for more than half of Japan’s economic productivity, was unchanged in the first quarter, as opposed to business expectations for a 0.1 % increase.
According to the information, capital consumption increased by 1.4 percent compared to industry forecasts for a 0.8 percent increase.
Exports dropped 0.6 %, while imports increased 2.9 %, while exports dropped 0.8 %, cutting 0.8 % off GDP growth. By contrast, domestic desire added 0.7 points to rise.
Capital costs increased, according to the report. The business may experience slowdown in April to June, but it will have momentum, according to Takeshi Minami, general economist at the Norinchukin Research Institute.
The Bank of Japan ( BOJ) may increase interest rates once more in September or October if the impact of Trump’s tariffs is minimal. However, he said rate increases may be put on hold if the tariffs severely affect capital expenditure and export.