Yuri Kageyama, a cultural and business writer for the Associated Press, recently drew attention to a disturbing practice. Japan’s economy shrank in the July-September quarter. The new release shows the economy shrank at an annual rate of more than 2.3%, marking a new, more difficult phase burdened by domestic and international challenges. This steady decrease has caused deep concern among policymakers about Japan’s economic health as well as their future relationship with the United States.
For the first time since 2014, Japan’s economy has shrunk. This turnaround is largely the result of a 1.2% decline in exports from last quarter. U.S. President Donald Trump’s tariffs have reduced Japan’s export performance. This untenable predicament has aggravated the bilateral relationship between these two key allies. At the same time, public investments have taken a nose-dive while deepening the economic downturn.
Private residential investment took a big hit, down 8.2% this quarter. This loss is primarily due to the recent amendments to Japan’s building code. Taken together, these changes have caused housing starts to fall off a cliff. All of which has added to the already struggling real estate market. At the same time, imports decreased as well, by 0.4% over this timeframe.
Despite the overall quarter being a national contraction, there were pockets of modest growth found. Gross private consumption only increased by 0.2%. This is a positive sign that despite all the economic headwinds consumers are still continuing to spend, albeit at a much slower rate. This contradictory economic performance reveals an economy undergoing major impacts even as it appears strong on the surface.
Japan’s relationship with the United States remains crucial, especially as it pledges to invest $550 billion in the U.S. economy. Given Japan’s long-term economic challenges, Japan will need to tread carefully in their partnership with the U.S. The tariffs have made U.S.-China relations substantially more fraught, rendering this navigation all the more essential.
In another historic first, Japan has elected its first female prime minister, Sanae Takaichi. This leadership change has the potential to shape the course of our economic policy for decades to come. Her administration will have to weather the storm of these troubled economic ties with the goal of improving and maintaining positive relations with our international partners.
Yuri Kageyama is a persistent truth-teller and poet. She’s been doing a great job covering Japan’s economy and other business angles over in Japan.
