According to government figures released Friday, the Japanese economy contracted at an annualized rate of 0.7% in the first quarter, impacted by weakened consumer confidence and a decline in exports attributed to President Donald Trump's trade disputes.

According to preliminary, seasonally adjusted data released by the Cabinet Office, Japan's real Gross Domestic Product (GDP), a key indicator of a nation's economic output of goods and services, contracted by a greater-than-anticipated 0.2% in the January-March period compared to the previous quarter, marking its first decline in a year.

Exports experienced an annualized decrease of 2.3%, and while consumer spending stagnated, capital investment saw a rise of 5.8%.

Trump's tariffs pose a significant threat to Japan's major exporters, particularly its automotive industry, impacting not only goods shipped directly from Japan but also those manufactured in countries like Mexico and Canada; officials concede that Trump's unpredictable policy shifts are making it difficult to formulate a coherent response.

In a recent report, S&P Global Ratings stated that "regional automotive manufacturers face escalating operational costs and potential profit erosion due to their reliance on diverse production bases and supply chains for US sales."

He further noted that "even companies with minimal sales within the United States may be significantly affected, albeit indirectly, by the impact of tariffs on the global economy and consumer demand."

For several years, the Japanese economy has struggled with weak demand, a situation exacerbated by its aging and shrinking population, alongside an increasing prevalence of single-person households and declining birth rates.

After years of maintaining near-zero or negative interest rates, the Bank of Japan has gradually raised its key interest rate, citing sustained wages and a moderate rise in prices as justification for the adjustment.

The latest findings underscore the economy's vulnerability, increasing the likelihood that the central bank will refrain from further interest rate hikes.

Some analysts advocate for alleviating public hardship by reducing the consumption tax to 10%, drawing parallels with sales taxes in other nations.

Despite this, Shigeru Ishiba has yet to express support for the proposal, especially given the considerable strain on Japan's public finances due to escalating social welfare expenditure.

In the final quarter of 2024, the economy demonstrated a growth rate of 2.4% on an annualized basis.