Japan's economy shrank by 0.7% in the first three months of the year, the government said on Friday. This happened because trade problems with the U.S., started by President Trump, caused fewer exports and made people less confident about spending money.

Japan's economy got smaller by 0.2% in January-March, which is more than experts thought. This is the first time it has shrunk in a year, according to early information from the government.

The amount of goods sold to other countries went down by 2.3% per year. People spent the same amount of money as before, but businesses invested 5.8% more.

Trump's taxes on imports may cause problems for big Japanese companies that sell a lot of products abroad, especially car companies. This is not just for products sent from Japan, but also from countries like Mexico and Canada. Government workers say it's hard to plan what to do because Trump often changes his plans.

S&P Global Ratings said that car companies in some areas may have higher costs and earn less money. This is because they sell cars in the U.S., and their factories and suppliers are in different places.

The report said that even companies that don't sell much in the U.S. might still be affected because tariffs can change the world economy and what people want to buy.

Japan's economy has had problems for a long time because fewer people are buying things, as the population gets older and smaller, and more people are single and have fewer kids.

The Bank of Japan had very low interest rates for a long time. Now, they are slowly increasing them because wages are stable and prices are going up little by little.

New information suggests the economy is not very strong, so the central bank might not increase interest rates for now.

Some experts think that reducing the 10% tax on goods could help people who are having a difficult time. This tax is like the sales tax in other countries.

But Shigeru Ishiba, the Prime Minister, has not said he likes this idea yet. It is because Japan has money problems because it spends a lot on things like care for older people.

The economy grew by 2.4% each year in the last three months of 2024.