Tokyo, Japan skyline with the Tokyo Tower
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Japan’s economy contracted by a smaller-than-expected 0.4% in the quarter ended September compared to the previous three months, helped by both private and government consumption.
Economists polled by Reuters had expected a 0.6% decline.
On an annualized basis, Japan’s GDP for the third quarter of 2025 fell 1.8%, a softer decline compared with estimates of a 2.5% contraction.
Exports of goods and services shrank 1.2% compared to the second quarter when they had risen by 2.3%. Net exports contributed to a 0.2 percentage point drop in GDP.
Japan’s shipments had seen contractions for four straight months since May as U.S. tariffs hurt exports, although September saw a rebound to growth. Tokyo in July clinched a trade deal with Washington, bringing down tariffs on its exports to the U.S. to 15% from 25%. The 15% tariffs took effect on Aug. 7.
Domestic consumption helped slow the economic contraction, with government and private consumption up 0.5% and 0.1%, respectively, compared to the second quarter.
Private demand proved to be the largest drag on GDP this quarter, declining 0.4% compared to the quarter before and pulling the economy down by 0.3 percentage point owed to a sharp plunge in residential investment, down 9.4%.
Public demand was a bright spot, growing 0.5% quarter on quarter and contributing 0.1 percentage point to the Japanese economy.
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