Japan economy shrinks as PM Takaichi readies major stimulus

November 17, 2025 / 9:33 AM

Sharjah24-AFP: Japan’s economy contracted by 0.4 per cent in the three months to September, marking its first contraction since the first quarter of 2024. The outcome, while better than forecasts of –0.6 per cent, occurs as new Prime Minister Sanae Takaichi moves quickly to address slowing growth.

Mixed economic signals despite overall slowdown

Despite the contraction, some indicators remain positive. BNP Paribas economist Ryutaro Kono noted that exports rebounded in September and that business conditions have not significantly weakened despite US tariff increases. Corporate investment willingness also stays steady, signalling underlying resilience.

China–Japan tensions heighten economic risks

Analysts warned that diplomatic tensions with China could escalate into a trade conflict. Capital Economics’ Marcel Thieliant cautioned that China might restrict rare earth exports or impose export limits, posing serious risks to Japanese industries—particularly car manufacturers already facing competition from Chinese electric vehicle producers.

Geopolitical strain rooted in Chinese Taiwan remarks

Relations deteriorated after Takaichi declared in parliament that Japan could deploy troops to Chinese Taiwan under “collective self-defence” if the island was attacked. Both nations summoned each other's ambassadors, with Beijing advising Chinese citizens to avoid travelling to Japan.

Weak residential investment contributes to contraction

The Cabinet Office report also highlighted declining residential investment as a key factor dragging down economic performance, further emphasising the necessity of the upcoming stimulus package.

Tariff adjustments offer some relief

A recent US–Japan trade agreement lowered tariffs on Japanese goods from 25% to 15% in mid-September, although Japanese cars—previously taxed at 27.5%—still face a 15% rate. Economists say the benefits may take time to materialise, given the broader uncertainty.