Japan GDP Falls on Trade Tensions, Weak Demand

Japan's economy contracted by 0.2% quarter-on-quarter and 0.7% annualized in the first quarter of 2025, exceeding forecasts. The sharper-than-expected decline was primarily attributed to weaker exports, affected by new tariffs imposed by U.S. President Donald Trump and reduced demand from China. Private consumption remained flat, missing expectations for growth as the effects of earlier wage increases faded, though upcoming wage hikes in 2025 may provide support. The Bank of Japan has highlighted increased uncertainty and is cautious about further rate hikes, even as inflation stays above its 2% target. These developments underscore Japan's vulnerability to external shocks and the difficult balance the central bank faces between supporting growth and controlling inflation. The disappointing GDP figures emphasize the fragility of Japan's recovery after a moderate rebound in 2024.