Japan’s economy shrank for the first time in a year before tariff jolt

The Japanese economy flipped back into reverse in the first three months of the year, with consumption staying below its pre-pandemic level as inflation saps purchasing power. | BLOOMBERG

by TORU FUJIOKA AND ERICA YOKOYAMA

BLOOMBERG
May 16, 2025

Japan’s gross domestic product was shrinking even before the bulk of U.S. President Donald Trump’s tariff measures took force, leaving the economy at risk of sliding into recession as Prime Minister Shigeru Ishiba heads into an election and the central bank weighs policy.

The economy flipped back into reverse in the first three months of 2025, contracting by 0.7% on an annualized basis adjusted for inflation, according to a report by the Cabinet Office released Friday.

The GDP decline was larger than a 0.3% contraction forecast by economists. Weaker trade figures were the main factor driving the slide, with stalling consumer spending offering little in the way of support.