Japan’s economy shrinks in last quarter, says report but Takaichi may not complain

Japan’s economy likely contracted in the last quarter as higher import costs and tariffs weighed on output but the country’s new leader, Sanae Takaichi, may see opportunity rather than alarm in the downturn.

Preliminary estimates released on Friday suggest that the world’s fourth-largest economy shrank modestly between July and September, reversing the fragile recovery seen earlier this year.

Economists attribute the slowdown to a combination of factors, weaker exports due to global trade tensions, subdued household consumption and the impact of newly imposed tariffs that have hit Japanese manufacturers particularly hard.

A Bloomberg report cited that rising energy prices and declining industrial production also played a role with the overall economic contraction expected to be in the range of 0.2% to 0.3%.

More from World

Hailed for her ‘tireless work’, Maria Corina Machado is Trump’s ‘some guy who didn’t do a damn thing’ US Ambassador Sergio Gor, Trump aide in Delhi on a 5-day tour for bilateral talks: State dept

Yen weakness fuels debate

Despite the disappointing figures, Takaichi’s policy circle appears unfazed. Advisers close to the prime minister argue that the yen’s weakness, a major factor behind Japan’s recent economic turbulence — could actually benefit domestic industries in the medium term.

“The weak yen is not necessarily a bad thing,” one of Takaichi’s economic advisers told Reuters, noting that exporters stand to gain from a more competitive currency. Japan’s automotive and electronics sectors, for instance, have seen higher overseas earnings when measured in yen terms, offsetting some of the import-driven inflationary pressures.

Takaichi herself has downplayed concerns about the currency’s slide, reportedly viewing it as a “temporary adjustment” that could help rebalance trade. However, officials at the Finance Ministry and Bank of Japan remain cautious, warning of volatility and the risk of further capital outflows if investor confidence wavers.

Impact Shorts

More Shorts

As Trump counts down govt shutdown, Congress leaders blame one another for fund deadlock

India must factor nuclear threats into its security calculus: CDS Chauhan

Fiscal worries mount

The yen’s recent plunge to multi-decade lows has reignited debate over Japan’s fiscal health. Public debt remains above 250% of GDP, the highest among advanced economies and analysts worry that the weakening currency could push up the cost of servicing that debt. The government has hinted at possible interventions to stabilise the yen, though past efforts have had limited long-term impact.

Takaichi’s economic balancing act

For now, Takaichi appears focused on cushioning households from rising living costs while maintaining a business-friendly stance. Her administration is reportedly preparing a new stimulus package aimed at supporting small firms and reviving consumer sentiment.

Still, analysts remain divided. While some see the weak yen as a potential catalyst for export-led growth, others warn that Japan risks slipping into a cycle of stagflation if inflation continues to outpace wage gains.

For Takaichi, the challenge lies in turning a shrinking economy into a strategic advantage — one that signals resilience rather than retreat.