Japan's Economic Struggles: Navigating Tariffs and Domestic Challenges

Japan's economy has experienced an unexpected downturn, shrinking by an annualized 0.7% in the first quarter of the year, a steeper decline than anticipated. This contraction, driven by stagnant private consumption and declining exports, reveals vulnerabilities heightened by U.S. President Donald Trump's aggressive trade policies.

While the GDP data contained some optimistic elements, such as a slight upward revision in last year's final quarter growth to 2.4%, caution prevails amid the ongoing trade tensions. Analysts warn that without robust drivers of growth, Japan's economy remains susceptible to external shocks, notably from newly imposed U.S. tariffs.

The tariffs could exert further pressure on Prime Minister Shigeru Ishiba to reconsider economic strategies, as the government's current stance excludes plans for immediate fiscal interventions. Additionally, Japan's automotive sector braces for challenges, with Toyota anticipating profit drops due to increased U.S. import costs.

(With inputs from agencies.)