Japan’s economy contracted by an annualised rate of 1.8% in the third quarter of 2025, dragged down by falling exports amid US President Donald Trump’s sweeping global tariffs on long-term trading allies.
On a quarterly basis, Japan’s export-reliant gross domestic product (GDP) slipped 0.4% in the three months to September, marking the first contraction in six quarters, according to government data issued by the Cabinet Office on 17 November.
Total exports fell by 1.2% in the third quarter, driven by lower shipment volumes of automobiles and components, the data showed.
Japan entered into a framework trade agreement with the US in July, which would see Trump’s tariff threat – ranging from 25% for most Japanese goods to 27.5% on automobiles – reduced to 15%. Under the agreement, Japan also committed to invest US$550bn in the US.
An expanded trade pact between the two countries was formally signed by new Prime Minister Sanae Takaichi during Trump’s visit to Tokyo in October and includes a critical minerals agreement, purchases of US energy and deeper cooperation to combat illegal drug trafficking, the White House said in a statement at the time.
Meanwhile, economists say Japan’s economic contraction is temporary and not as bad as expected, according to a report by The Asahi Shimbun newspaper.
“Overall, the economy lacks strong underlying momentum, but the trend still points to a gradual recovery over the next year or two,” Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, told the newspaper.