Japan's Economy Contracts for First Time in Six Quarters on Tariff Hit

• Japan's economy shrank by 1.8% in the three months through September, as a drop in exports in the face of U.S. tariffs resulted in the first contraction in six quarters, government data showed on Monday.
• Exports constituted the main drag as the impact of higher U.S. tariffs intensified. Automakers saw shipment volume plunge, reversing earlier front-loaded exports ahead of tariff hikes, though they mostly absorbed tariffs by cutting prices.
• Still, as the overall contraction was not as acute as expected, it likely represents a temporary setback rather than the start of a recession, economists said.
• Economists generally viewed this quarter's GDP figures as having a marginal impact on the Bank of Japan's thinking when next deciding interest rates versus factors such as inflation. However, an economist close to Prime Minister Sanae Takaichi gave the data more weight.
• Given the contraction, it "would be misguided for the BOJ to decide to raise interest rates" in December, Credit Agricole chief Japan economist Takuji Aida, who is on Takaichi's flagship panel tasked with laying out the country's growth strategy, said in a report to clients.
• Housing investment also weighed on growth as tighter energy-efficiency regulations introduced in April slowed commitments.
• The weak GDP data comes as Takaichi's government compiles a stimulus package to help households manage rising living costs.
• Advisers to Takaichi have cited a likely sharp GDP contraction as a reason for aggressive stimulus measures. Finance Minister Satsuki Katayama told reporters on Sunday that the proposed economic stimulus would exceed 17 trillion yen ($109.94 billion), media reported.

(Source: Reuters)