Japan's economy shrank by 1.8% year-on-year in the third quarter of 2025

Japan's economy shrank by 1.8% year-on-year in the third quarter of 2025, the first decline in six quarters. The main reason for the decline was a decline in exports, especially of automobiles, due to the introduction of US duties. Nevertheless, the decline was less than analysts had predicted, and domestic consumption and investment continued to grow steadily.

Source Minfin

The main factors that contributed to the decline in GDP were a decline in net external demand and a decrease in investment in residential construction due to the introduction of energy efficiency standards. Despite the decline in GDP, domestic indicators, such as private consumption and business capital expenditures, showed growth, indicating a certain resilience in the economy. The Japanese government is already planning a new economic stimulus package worth more than 17 trillion yen to support households.

These negative data may complicate the situation for the Bank of Japan, which may come under pressure to revise its monetary policies. Although economists believe that the regulator will focus more on inflation than GDP, the economic contraction may affect its interest rate decisions in the face of economic uncertainty.