Japan's Economy Contracts 0.4% in Q3, First Drop in Six Quarters

Japan's economy contracted for the first time in six quarters during the July-September period, shrinking at an annualized rate of 1.8 percent, according to government data released Monday. The downturn, driven primarily by weaker exports amid U.S. tariffs and softer domestic demand, marked a quarterly decline of 0.4 percent, milder than the 0.6 percent drop anticipated by economists.

The Cabinet Office reported that the contraction followed a revised 0.6 percent expansion in the April-June quarter, which benefited from frontloaded exports as businesses rushed shipments to avoid impending tariff increases. On an annualized basis, the third-quarter figure exceeded expectations of a 2.5 percent fall, providing some relief to policymakers navigating global trade pressures. Exports fell 1.2 percent from the prior quarter, subtracting 0.2 percentage points from growth, as automakers and other manufacturers absorbed the impact of higher duties by cutting prices. Imports dipped 0.1 percent, reflecting cautious business investment abroad.

Domestic factors also weighed on the economy. Private consumption, which accounts for more than half of Japan's output, rose just 0.1 percent,...