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Japan’s economy shrank 1.8% on an annualized basis in the July–September quarter, marking its first decline in six quarters. The slowdown arose from softer exports, weak consumer spending, and regulatory pressures. The contraction, slightly below economists’ expectations, highlights the ongoing fragility of Japan’s economic recovery. Exports weighed heavily on growth, as trade tensions—especially tariffs on shipments to the United States—reduced output. Net external demand is subtracted from the overall quarterly growth. Private consumption, which makes up more than half of Japan’s GDP, has grown by only 0.1%. High living expenses and stagnant wages have led households to be cautious, with limited discretionary spending on goods and services.  Meanwhile, housing investment suffered too on the back of changes in building regulations, as well as tighter financing, with residential expenditure plunging. On the bright side, businesses also increased capital spending by about 1%, driven by strong business sentiment and targeted investments in equipment and factories.  Government rolls out major stimulus amid rising inflation Inflation remains high, with core consumer prices rising significantly above the Bank of Japan’s target of 2%. Soaring prices for staples such as energy and food continue to put pressure on households. Meanwhile, Prime Minister Sanae Takaichi is preparing an ambitious economic stimulus package, valued at over ¥17 trillion (around US$110 billion). Measures are expected to include subsidies on electricity and gas bills, cuts to gasoline taxes, targeted tax breaks, and strategic investment in growth industries such as AI and semiconductors. The government plans to fund the package through a large supplementary budget, likely exceeding last year’s additional spending of ¥13.9 trillion. Policymakers struggle to ensure that they are providing strong fiscal support while being responsible for its fiscal implications. Monday’s GDP numbers boost political support for aggressive fiscal spending. But Japan’s already elevated public debt raises concerns about…

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Filed under: News - @ November 17, 2025 2:05 am