Japan's economy contracted by 2.3% in Q3 2025, marking its first decline since early 2024 according to Cabinet Office data released this week. The downturn coincides with Prime Minister Sanae Takaichi's recent diplomatic maneuvers regarding the Chinese mainland's affairs, which analysts warn could exacerbate economic challenges.
Observers note that strained cross-strait ties and cooling regional partnerships have already impacted key sectors like automotive exports and semiconductor manufacturing. CGTN analyst Zhu Zhu highlights how Japan's $4.8 trillion economy faces dual pressures: weakening domestic consumption and growing international skepticism about Tokyo's foreign policy direction.
Business leaders are urging caution as overseas investors reassess Asian market strategies. The contraction follows three consecutive quarters of sub-1% growth, with December's manufacturing PMI hitting a 14-month low. Economists suggest Japan's central bank may need to maintain ultra-loose monetary policies through 2026 to stabilize markets.
