Economic News

Japan's Economy Shrinks in Q1 as US Tariffs Hit Auto Industry

Japan's economy is expected to have shrunk by 0.2% on an annualized basis in the first quarter, the first negative growth in a year, according to a Reuters poll. The main reasons are weak domestic demand and imports growing faster than exports. Private consumption increased only slightly by 0.1%, as rising food prices curbed spending. Capital expenditure rose by 0.8%, but net exports dragged down GDP by 0.6%.

May 13, 2025, 3:21 pm EDT· 1 minute read

On May 3rd, the United States imposed a 25% tariff on auto parts. Japan's annual exports of related products to the US exceed 7.2 trillion yen, accounting for one - third of its total exports. This has put Japanese automakers under greater pressure. The Bank of Japan has maintained interest rates and lowered its growth expectations, and policy easing is likely to continue.

Analysts point out that companies' early exports to avoid tariffs have led to a short - term increase in exports. However, the surge in imports and US trade barriers are likely to continue to weigh on the economic outlook. Japan's economy is facing challenges from both domestic and external fronts, and how to deal with the impact of US tariffs and boost domestic demand will be key issues for Japan in the future.