According to data released by the government on Friday, Japan's economy contracted at an annualized rate of 0.7% in the first quarter, as President Donald Trump's trade war took a toll on exports and dampened consumer confidence. Preliminary, seasonally adjusted figures from the Cabinet Office revealed that real GDP shrank by a greater-than-expected 0.2% from the previous quarter during the January-March period, marking the first contraction in a year. Exports declined at an annualized rate of 2.3%, while personal consumption remained flat, and capital expenditure increased by 5.8%. Trump's tariffs are likely to impact major Japanese exporters, particularly automobile manufacturers, affecting not only products shipped from Japan but also those from other countries, such as Mexico and Canada. Insiders acknowledge the difficulty in formulating countermeasures, given Trump's frequently shifting policies. S&P Global Ratings stated in a report that "regional automakers face rising operating costs and potential earnings losses as their US sales rely on diversified production bases and supply chains," adding that "even companies with minimal sales in the US could be significantly, albeit indirectly, impacted as tariffs affect the global economy and consumer demand." The Japanese economy has struggled for years, plagued by an aging and shrinking population, coupled with flagging demand stemming from an increase in single-person households and a declining birth rate. The Bank of Japan, which has maintained near-zero or negative interest rates for years, has been gradually raising benchmark interest rates amid observations that wages are holding up and prices are slowly rising. These latest figures highlight the economy's fragility, increasing the likelihood that the central bank will refrain from further rate hikes. Some analysts suggest alleviating the public's plight by reducing the 10% consumption tax, similar to sales taxes in other countries, but Prime Minister Shigeru Ishiba has thus far shown no inclination to support the proposal, as Japan's national finances are under severe strain due to ballooning social welfare costs. In the final quarter of 2024, the economy expanded at an annualized rate of 2.4%.