TOKYO — Japan’s economic performance deteriorated more severely than initially projected during the third quarter, with revised data revealing an annualized contraction of 2.3% between July and September. This downward revision from the previously reported 1.8% decline underscores the mounting challenges facing the world’s third-largest economy.
The Cabinet Office’s updated figures indicate a quarter-on-quarter GDP reduction of 0.6%, exceeding preliminary estimates. The economic downturn has been primarily driven by declining exports, which fell by 1.2% during the quarter, and a significant 8.2% plunge in private residential investment.
Trade tensions initiated by the Trump administration have substantially impacted Japan’s export sector. Although the United States subsequently reduced planned tariff increases on Japanese imports from 25% to 15% in September, the automotive sector—a cornerstone of Japan’s economy—continues to face considerable pressure.
In response to these economic headwinds, Japan has committed to a substantial $550 billion investment package in the United States, a strategic move announced during bilateral tariff negotiations. This commitment reflects the complex economic diplomacy between the two nations amid strained trade relations.
The residential investment decline has been attributed primarily to regulatory changes in Japan’s building code, which triggered a significant reduction in housing starts earlier this year. Meanwhile, modest positive trends emerged in consumer spending, with private consumption edging up 0.2%, while imports decreased by 0.4%.
Political leadership under Prime Minister Sanae Takaichi, Japan’s first female premier, faces mounting pressure to stimulate economic recovery. Despite maintaining popularity through assertive nationalist rhetoric, the administration’s ability to engineer a robust economic turnaround remains uncertain amid these challenging macroeconomic conditions.