The Japanese economy shrank by 0.7% in the first three months of the year, a government report said on Friday. This was because trade problems caused by U.S. President Donald Trump made it harder to sell goods abroad, and people were less sure about spending money.

Japan’s real gross domestic product, or the measure of a nation’s goods and services, shrank at a greater-than-expected 0.2% in January-March compared to the previous quarter in the first contraction in a year, the Cabinet Office’s seasonally adjusted preliminary data showed.

Sales to other countries went down a little, about 2.3% per year. People spent about the same amount of money as before, but businesses invested 5.8% more.

Trump's taxes on imports will probably affect big Japanese companies that export a lot, especially car makers. This will happen not just for things sent from Japan, but also from other countries like Mexico and Canada. People in charge know that it's hard to plan what to do because Trump keeps changing his plans.

S&P Global Ratings said that car companies in some areas may have higher costs and could lose money. This is because their sales in the U.S. rely on having different places for making parts and getting supplies.

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

Japan's economy has had problems for a while. Fewer people are buying things because the population is getting older and smaller, and many people are not getting married or having kids.

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

The new information suggests the economy is not strong. Because of this, the central bank will probably not increase interest rates for now.

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

But Shigeru Ishiba, who is the Prime Minister, has not said yes to this idea yet. It's because Japan has money problems because they are spending more on things like care for older people.

The economy got bigger by 2.4% per year at the end of 2024.