TOKYO, May 16 (AFP): Japan's economy suffered its first quarterly contraction for a year in January-March, preliminary data showed Friday, and analysts warned Donald Trump's tariffs could tip it into recession if a deal is not struck.
The 0.2 percent on-quarter shrinkage was more than expected and will deal a blow to Prime Minister Shigeru Ishiba ahead of parliamentary elections in July, with voters already angry over inflation and corruption within the ruling party.
Observers said the figures -- which compared with 0.6 percent growth in the final three months of 2024 -- could also mean the Bank of Japan will have to wait a little longer before resuming its monetary tightening programme.
The last time the world's number four economy shrank was in January-March 2024 -- when it contracted 0.4 percent.
On an annualised basis, the economy shrank 0.7 percent in the first quarter.
Ahead of the data, experts said Japan would face headwinds as the US president's trade war roils the global economy, and while Tokyo is in discussions with the White House to avert the full impact there are still plenty of concerns.
"Uncertainty is greatly heightened by the Trump tariffs, and it is likely that the economic slowdown trend will become clearer from (the second quarter) onward," said BNP Paribas chief economist Ryutaro Kono.
Trump's hardball campaign to rectify what he says are unfair trade imbalances includes tariffs on trading partners and imports including steel and automobiles.
But Japan's economic woes run deeper than the trade war.
With domestic and foreign demand flagging, the economy "remains without a driving force", said Yoshiki Shinke of Dai-ichi Life Research Institute.
"The possibility of the economy entering a recession cannot be ruled out, depending on the degree of downward pressure caused by the tariff issue," he warned before Friday's release.
The data showed exports, a key driver of growth, fell 0.6 percent on-quarter while imports jumped 2.9 percent, weighing on overall GDP.
The Bank of Japan this month revised down its growth forecasts and held interest rates steady, warning that trade tariffs were fuelling global economic uncertainty.
"With US tariffs set to weigh on export growth, the Bank of Japan's decision to become more downbeat about the economic outlook at its previous meeting seems to be vindicated," Marcel Thieliant of Capital Economics said Friday.
