Japan's Economy Faces First Contraction in Six Quarters Amid Trade Challenges

Japan's economy witnessed an annualized contraction of 1.8% in the July-September quarter, the first decline in six quarters, due to export challenges from U.S. tariffs. This contraction complicates the Bank of Japan's interest rate plans, as the government prepares a stimulus package to mitigate rising living costs.

Japan's economy contracted by an annualized 1.8% in the third quarter of 2023, marking its first decline in six quarters, according to government data released on Monday. The contraction, driven by the impact of U.S. tariffs on exports, poses challenges for the Bank of Japan's plans to raise interest rates.

The fall in GDP was less severe than the anticipated 2.5% drop in a Reuters poll, following a revised 2.3% growth in the previous quarter. This earlier growth was attributed to strong exports as Japan expedited shipments to the U.S. during tariff negotiations.

Despite a trade agreement with the U.S. reducing some tariffs, the GDP drop underscores the economic hurdles posed by trade disputes. Meanwhile, Prime Minister Sanae Takaichi's government is formulating a stimulus package to counteract high living costs, with experts suggesting slower interest rate hikes might be necessary.

(With inputs from agencies.)