Japan's Economic Downturn: The Tariff Tug-of-War

Japan's economy contracted at an annualised rate of 1.8% from July to September, hurt by US tariffs impacting exports, particularly automotive. Despite this, imports dropped less, and private consumption saw a slight rise. The downturn was less severe than anticipated, amidst a backdrop of recent political changes.

In a significant downturn, Japan's economy shrank by an annualised 1.8% in the July-September quarter, largely due to US-imposed tariffs that sent exports plummeting. The contraction represents the first in six quarters, with the GDP declining 0.4% on a quarter-by-quarter basis, as reported by the Cabinet Office.

The annualised contraction would have resulted in a continued downturn had the rate persisted throughout the year, though it was less severe than market forecasts of 0.6%. A major factor was the 1.2% decrease in exports, driven by businesses accelerating shipments ahead of the tariffs, skewing earlier export data.

Despite this downturn, some sectors saw slight gains. Imports dipped by just 0.1% while private consumption rose 0.1%. Japan's export-reliant economy, led by automotive giants like Toyota Motor Corporation, faces pressure as the US now imposes a 15% tariff on nearly all Japanese imports. Meanwhile, Japan's political landscape has shifted with Sanae Takaichi becoming prime minister in October, providing some stability amidst economic uncertainty.

(With inputs from agencies.)