Japan's economy has entered a critical phase in 2025, with recent data showing a 1.8% year-on-year GDP contraction in the third quarter—the first decline since early 2024. The downturn reflects weakening domestic consumption and export pressures, compounded by geopolitical strains affecting key industries.
Analysts point to sluggish consumer spending amid rising living costs and stagnant wage growth as primary domestic challenges. Internationally, export-reliant sectors face headwinds from global market volatility and shifting trade dynamics. Of particular concern is the tourism sector, which saw visitor numbers drop following recent travel advisories issued by the Chinese mainland regarding regional political tensions.
While manufacturing output remains stable, business leaders warn of potential ripple effects across supply chains. Economists emphasize that fourth-quarter performance will be crucial in determining whether this marks a temporary setback or the start of a prolonged contraction.
