Japan’s economy contracted less than initially estimated in the January–March quarter, government data showed on Monday, with consumption figures revised upwards at a time when uncertainty surrounding U.S. tariffs is clouding the outlook.
Gross domestic product shrank an annualised 0.2% in the three months through March 31, revised data from the Cabinet Office showed. This was a smaller decline than the 0.7% previously announced on May 16, which had matched economists’ median forecast.
Versus the previous quarter, the revision translates to flat growth in price-adjusted terms, compared with an initially estimated 0.2% contraction.
The revision does little to ease concerns that Japan’s economic momentum was already faltering before U.S. President Donald Trump implemented so-called reciprocal tariffs on April 2.
“It wasn’t a revision that changed our view on the overall economy,” said economist Uichiro Nozaki at Nomura Securities.
Private consumption, which accounts for more than half of Japan’s economy, grew 0.1%, up from flat in the initial reading. The revision reflected new data from restaurant and game sales.
Capital expenditure, a key measure of private demand, expanded 1.1% in the first quarter, revised down from 1.4%. Economists had expected 1.3%.
An upward revision in private inventories also contributed to lessening the degree of contraction in the overall figure, according to the government.
External demand, or exports minus imports, reduced growth by 0.8 percentage point, consistent with the initial reading. Meanwhile, domestic demand contributed positively by 0.8 percentage point.
Japan faces a 24% U.S. tariff from July unless it can negotiate a lower rate. Given the size of its automobile sector, the government is seeking exemptions for automakers from the proposed 25% tariff.
“In terms of the April–June quarter and beyond, there are a number of concerns, such as worries about exports and weak domestic demand,” said economist Kazutaka Maeda at Meiji Yasuda Research Institute.
“It is unclear how the tariff negotiations will turn out, but given the scale of the automotive industry, it will be difficult for the U.S. to back down easily, meaning the talks will be quite difficult.”
Policymakers and analysts are concerned that U.S. trade tensions may complicate the Bank of Japan’s efforts to normalise monetary policy. The central bank is set to hold a two-day policy meeting early next week.
Monday’s revised GDP data is unlikely to significantly influence the meeting’s outcome, said Nomura’s Nozaki. He noted that the BOJ is more focused on the trade negotiations and their broader impact on exports and economic stability.
“For the BOJ, the basic approach to assessing the economy will be to monitor both the immediate data and the status of negotiations” to make policy decisions, Nozaki said.
