Japan’s GDP Declines

The Cabinet Office released Japan’s gross domestic products (GDP) in the third quarter (July to September) of 2025. The real GDP in the period marked 0.4 percent of decline from the previous quarter, causing 1.8 percent down of annualized real GDP from the previous year. It was the first time for Japan’s real GDP to turn into the negative in these six quarters, or since the first quarter of 2024. Trump tariffs, foreign travelers and housing are main elements of negative growth of Japanese economy.

The quarterly estimates by Japanese government indicated 0.1 percent of growth in nominal GDP in the third quarter of 2025, which could be interpreted as 0.5 percent of annual growth. However, when it came to real GDP, which excluded effects of price fluctuation, the growth sank into a minus. Contributions of both foreign and domestic demands to GDP were also declined from the previous quarter.

 

Exports marked 1.2 percent of decline. Although Japan and the United States hit a deal to reduce tariff rate on Japanese products from 25 percent to 15 in July, car exports of Japanese manufacturers kept on significant decline. Efforts of Japanese carmakers to lowering the price of cars to the U.S. did not work for increasing exports of Japan. Financial balance of car manufacturers is deteriorating significantly.

 

Consumption of foreign travelers in Japan is counted as an export of service. It declined by 1.6 percent in the third quarter of 2025. The foreign travelers’ purchase in Japan has been growing along with depreciation of Japanese yen. However, visitors from some places in the world, including Hong Kong, marked a decline from previous year. The negative growth in consumption of foreign travelers was for the first time in these four quarters.

 

Investment on private houses marked a significant drop of 9.4 percent. The government of Japan introduced a new regulation for energy efficiency for houses in April. To avoid that regulation, certain amount of investment was made before April. Caused by that regulation, the investment in April or later declined in comparison with previous quarters. It is regarded that the influence of the regulation will be temporary.

 

Individual consumption, which occupies over the half of GDP, marked slight growth of 0.1 percent. Consumption of beverages and restaurants increased in the hot summer this year. Purchase of clothes and cars declined. Capital investment of private companies marked 1.0 percent of increase. The government has been estimating that Japanese economy showed moderate growth in recent months.


Sanae Takaichi administration upholds “responsible and active fiscal policy,” with possible issuance of governmental bonds. A large amount of issuing governmental bonds theoretically leads to high long-term interest rate and depreciation of Japanese yen. That may cause further price inflation. Takaichi’s economic policy will be tested in terms of growth of Japanese economy.

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