Annual GDP Falls in the First Quarter

The Cabinet Office released quarterly estimates of real GDP between January to March in 2025, which marked 0.2 percent of decline from the previous quarter. The decline is interpreted as annual 0.7 percent of fall. Economic growth of Japan showed decline for the first time since the first quarter of 2024. Suffering from the United States tariff policy led by President Donald Trump, Japan’s economy is likely to be exacerbated through the rest of this year. 

Nominal GDP of the first quarter of this year was 0.8 percent of growth, which was evaluated as 3.1 percent of annual growth. While nominal GDP is affected by fluctuation of commodity prices, real GDP indicates actual development of economy removing effect of price. It is possible that price inflation, led by international security situation or promotion of inflation by Japanese government, was reflected on the growth of nominal GDP.

 

The main element of decline in real GDP would be decrease of exports. It dropped by 0.6 percent from the previous quarter. It was the first time in current four quarters for exports to decline to a minus. Fee for using intellectual property right decreased, causing the significant down of exports. Car export rather increased, before Trump tariffs would be imposed on Japanese cars.

 

Imports, which increase negatively affects GDP, has expanded. Imports in the first quarter in 2025 grew 2.9 percent from the previous quarter. Payment for airplanes or advertising services increased. While domestic demands contributed to 0.7 points of increase of GDP, foreign demands reduced it by 0.8 points.

 

Individual consumption, which occupies more than a half of GDP, increased only 0.04 percent, in spite of price inflation. Consumption of foods, including meats or fish, declined. Although wage hike must have been supporting purchases, consumers are supposed to have refrained from shopping, facing price inflation. Price of rice in the first quarter was doubled from a year ago. Price rises faster than increase of salaries.

 

Capital investment, another major pillar in GDP, increased by 1.4 percent, with helps of active investment on research for digital transformation. Investment for housing also grew by 1.2 percent, reflecting financial improvement of private companies. Financial results of major corporations in Japan at the end of March mostly showed historical growth. Public investment and governmental investment showed a slight decrease.

 

Greatest concern for Japan’s GDP for the rest of this year is Trump tariffs. While Japan requires revision of U.S. tariff policy, the U.S. does not show any intention of special treatment for Japan. Car manufacturers, steel or aluminum makers and chip producers are afraid of downward pressure on their profit in coming months. If U.S. tariffs are imposed on Japanese goods for a long time, it will weaken capital investment and disturb wage hike in private companies, causing decline of consumption.

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