Japan‘s economy contracted at a 1.8% annualized rate in the third quarter of 2025, as President Donald Trump’s tariffs have caught up with the island nation’s exports.
Trump reached a trade deal with Japan in July, announcing a 15% baseline reciprocal tariff rate on the nation instead of the previously threatened 25% tariff rate. As part of the deal, Japan committed to invest $550 billion into the United States, including in the form of energy infrastructure, artificial intelligence infrastructure, and electronics investments.
Japan’s economy showed signs of growth earlier in the year, but economists have predicted that the optimistic reports were inflated as exporters rushed to beat U.S. tariffs. Japan’s largest export is vehicles, and its top destination for exports is the U.S.
According to a government economic report, Japan’s gross domestic product fell 0.4% in the July-September quarter on a quarter-by-quarter basis. The decline was the country’s first contraction in six quarters.
The annualized contraction, however, was less than expected, according to Reuters, which anticipated a 2.5% annualized contraction this quarter. Japanese automakers have seen exports plummet, and residential housing investments have also contributed to the contraction, according to the news outlet.
TRUMP HAILS JAPAN’S NEW PRIME MINISTER, SAYS US IS ‘ALLY AT THE STRONGEST LEVEL’
Trump visited Tokyo in late October during his trip through Asia to meet the new prime minister, Sanae Takaichi, for the first time.
The conservative leader has plans to lead a revival of the Japanese economy by leading efforts on a supplementary budget for the country, according to the New York Times.
