Japan GDP Decline Reflects Tariff Drag in First Contraction in Six Quarters

A sharper-than-expected Japan GDP decline of an annualised 1.8% in Q3 marked the country’s first economic contraction in six quarters, driven by slumping exports to the US under higher tariffs and weaker housing investment.

The fall, though milder than predicted, showed net external demand shaving 0.2 percentage point off growth, while private consumption inched up 0.1% and capital spending rose 1%, reflecting uneven domestic momentum.

Economists view the setback as temporary but warn that the Japan GDP decline highlights fragile recovery prospects as Prime Minister Sanae Takaichi prepares a JPY17tr (USD112bn) stimulus to ease cost-of-living pressures.

Markets expect the Bank of Japan to maintain policy settings in December, with analysts predicting a gradual rebound in the current quarter.