Japan's GDP sees a slight decline while the central bank remains in a wait

Q1 GDP Revision Narrows,Is the FXTM forex platform reliable Economy Only Slightly Shrinks

Revised data released by Japan's Cabinet Office this Monday showed that Japan's real GDP for the first quarter of 2025 declined by 0.2% on an annualized basis, much narrower than the previously estimated 0.7% decline. Although economic activity is still contracting, the data eases some market concerns about a deep downturn in Japan's economy.

Analysts pointed out that although the economy is in negative growth, the revision suggests that the downward pressure on the economy is not as severe as initially expected. This might help the Bank of Japan maintain patience and policy flexibility amid rising internal and external uncertainties.

Mild Recovery in Domestic Demand Boosted by Inventory

In terms of components, personal consumption slightly increased by 0.1% in the first quarter, indicating that consumer spending hasn't significantly improved but hasn't severely declined either. Corporate equipment investment grew by 1.1%, reflecting a degree of confidence in the medium- to long-term outlook among businesses.

Inventory changes contributed 0.6 percentage points to overall economic growth, serving as one of the key supporting factors. However, net exports dragged overall growth by 0.8 percentage points, underscoring the pressure on Japan's economy from slowing global demand and weak exports.

U.S. Tariff Risks Approaching, Japanese Economy Shows Fatigue

The revised data also indicates that Japan's economy had already begun to decline before U.S. President Trump's expansion of tariff measures on goods from multiple countries in April. This has made the worsening trade environment not just a future risk but a significant impact on economic fundamentals.

Adverse exports, yen appreciation, and decreased overseas orders could continue to weigh on manufacturing in the second quarter. Should the U.S. further increase tariffs, Japanese export companies will face greater pressure.

Data Reinforces Cautious Stance of Central Bank, May Continue Easing Policy

In a previous monetary policy meeting, the Bank of Japan had already lowered the annual economic growth forecast, and the revised first-quarter GDP data further verified its cautious judgment.

The market generally believes that the Bank of Japan will maintain its current ultra-easy policy unchanged in the short term. With inflation still lackluster and the economic recovery lacking intrinsic momentum, the central bank may continue to emphasize patience and policy flexibility.

A senior market analyst in Tokyo said, "This data will not prompt the central bank to tighten policy, but rather gives it more reason to maintain the current strategy in the face of external risks."

Risks Persist in Q2

In the second quarter, global trade conditions remain unclear, coupled with rising raw material costs and consumption tax adjustments, Japan's economy may face further fluctuations. Although domestic demand shows some resilience, the economy could still be under pressure if exports continue to be weak.

In the coming months, the policy direction of the Bank of Japan will continue to be a focal point for the market. Analysts advise investors to closely watch Japan-U.S. trade negotiations, yen trends, and domestic consumption recovery dynamics.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.