New government figures show that Japan's economy shrank by 0.7% per year in the first three months of the year. This was because exports suffered due to the trade war started by US President Donald Trump, which also made people less confident about spending.

Japan's economy unexpectedly shrank by 0.2% in the first three months of the year, according to government figures. This decline in GDP, which measures the country's goods and services, is the first contraction in a year.

Exports fell by 2.3% compared to last year. Consumer spending didn't change much, but investment in businesses increased by 5.8%.

Trump's tariffs will probably harm Japan's major exporters, especially car manufacturers, affecting products shipped from Japan, as well as those from countries like Mexico and Canada. Officials admit that planning a response is difficult because Trump frequently changes his decisions.

According to a report by S&P Global Ratings, local car companies may struggle with higher costs and lower income, as their sales in the U.S. rely on varied manufacturing locations and supply networks.

The report suggested that even companies with limited sales in the U.S. might experience significant, though indirect, effects as tariffs influence the global economy and consumer spending.

The Japanese economy has faced challenges for years, partly due to low consumer demand as its population gets older and smaller, with more people choosing to remain single or have fewer children.

The Bank of Japan, which had kept interest rates near zero for a long time, has started to slowly increase them, pointing to stable salaries and a gradual rise in prices.

Recent data, suggesting the economy is still weak, increases the chance that the central bank will pause any further interest rate increases.

Some experts suggest reducing the 10% consumption tax, like a sales tax, to ease the financial difficulties people are facing.

However, Prime Minister Shigeru Ishiba has not yet declared his support for the plan, especially as Japan's public finances are under pressure because of rising social welfare expenses.

The economy expanded at an annual rate of 2.4% in the final quarter of 2024.