Japanese economy shrank by 0.7% annually in the first quarter, government data revealed on Friday, as US President Donald Trump's trade disputes negatively impacted exports and weakened consumer confidence.

Preliminary data shows that Japan's real Gross Domestic Product (GDP), a key indicator of the country's economic output, unexpectedly shrank by 0.2% in the first quarter of the year compared to the previous quarter. This contraction, the first in a year, was revealed in seasonally adjusted figures released by the Cabinet Office.

Exports saw an annual decrease of 2.3%. Consumer spending remained stable, while capital investment increased by 5.8%.

Trump's tariffs could negatively impact major Japanese exporters, especially car manufacturers, not only on products exported from Japan but also from countries like Mexico and Canada. Officials admit that creating a response strategy is challenging due to Trump's unpredictable changes of opinion.

S&P Global Ratings noted in a report that regional car manufacturers are facing rising operational costs and potential revenue losses due to their reliance on diverse production facilities and supply chains for US sales.

The report indicated that even companies with minimal sales in the US could experience significant indirect effects as tariffs impact the global economy and consumer demand.

The Japanese economy has faced significant challenges in recent years, hampered by weak demand due to an aging and shrinking population, with a growing number of single-person households and declining birth rates.

The Bank of Japan, which has maintained near-zero or negative interest rates for a long period, has cautiously started to raise its benchmark interest rate, citing sustained wage growth and a gradual increase in prices.

Recent findings, which highlight the vulnerability of the economy, increase the likelihood of the Central Bank postponing further interest rate hikes.

Some analysts are suggesting a 10% reduction in consumption tax, similar to sales tax in other countries, as a way to ease the financial burden on citizens.

However, Prime Minister Shigeru Ishiba has yet to voice his support for this proposal, as Japan's national finances are under considerable strain due to rapidly increasing social security costs.

Nền kinh tế tăng trưởng với tốc độ 2,4% hàng năm trong quý cuối năm 2024.