Tokyo | November 7, 2025
Japan’s economy likely shrank 0.6% in the third quarter (annualized at 2.5%), marking its first contraction in six quarters, according to a Reuters poll released early Friday. Analysts point to US-imposed tariffs on Japanese goods—particularly automobiles—as the primary drag on growth, alongside weakened domestic spending and slower business investment.
The latest downturn underscores growing strain in Japan’s export-dependent economy, which had shown signs of resilience through early 2025. However, the 15% US tariffs on key Japanese exports, including cars and electronics, have disrupted trade flows and rattled corporate confidence.
“The impact of tariffs was immediate. Auto and machinery exports took the hardest hit, forcing production cuts,” said Hiroshi Tanaka, senior economist at Nomura Research Institute.
Private consumption—accounting for over half of Japan’s GDP—also weakened amid rising import costs and a yen depreciation that inflated prices for everyday goods. Business capital spending similarly slowed, reflecting caution ahead of policy shifts expected from both Tokyo and Washington.
Official GDP figures are scheduled for release on November 17, which could confirm the first official contraction since early 2024.
Global Implications
Economists warn that continued trade tensions between Tokyo and Washington may dampen Asia’s broader recovery. Japan’s slowdown could also affect regional supply chains, especially in autos and semiconductors, sectors closely tied to US demand.
“This is a signal that trade protectionism is beginning to reshape Asia’s growth narrative,” noted Morgan Stanley economist Keiko Fujita.
Outlook
While Japan’s central bank is expected to maintain its ultra-loose monetary policy, policymakers face mounting pressure to support domestic demand and counteract trade headwinds. Analysts suggest that targeted fiscal measures may be necessary to prevent further slowdown heading into 2026.
Summary Table: Japan Q3 Economic Snapshot (Preliminary Poll Data)
| Metric | Q3 2025 Estimate | Q2 2025 (Revised) | Key Driver |
|---|---|---|---|
| GDP Growth (QoQ) | -0.6% | +0.9% | Tariff impact, weaker exports |
| Annualized Rate | -2.5% | +3.8% | US trade tension |
| Private Consumption | -0.3% | +0.5% | Higher import costs |
| Capital Spending | -0.5% | +0.8% | Business caution |
| Exports | -1.8% | +1.2% | 15% US tariffs on autos |
