Japan’s economy contracted in first quarter of 2025

Bloomberg reports that Japan’s GDP was contracting before most of US President Donald Trump’s tariffs came into effect, leaving the Asian country’s economy at risk of falling into a recession. 

The Cabinet Office data shows Japan’s GDP shrank by 0.7% on an annualized basis adjusted for inflation. The decline was larger than analyst expectations of a 0.3% contraction. The drop in GDP was mostly driven by lower exports and surging imports.

This situation supports the case for the Bank of Japan to hold its rates steady while monitoring the impact of US duties, Bloomberg says. Markets now see only a 12% chance of a hike in borrowing costs by July. 

Taro Saito of NLI Research Institute projects the country’s GDP will continue falling. In addition, he highlights the risks of a technical recession. The expert believes the data for the first three months does not reflect the impact of Trump's tariffs, which will kick in during this quarter. Taro Saito forecasts a further drop in Japan's exports, fueled by concerns about the economic outlook.