Japan’s economy contracted 1.8% on an annualized basis in Q3 2025, a smaller decline than the 2.5% drop expected and a reversal from the slightly revised 2.3% growth in Q2, flash data showed. This marked the first annualized decline in six quarters, pressured by the weakest private consumption in three quarters as rising food prices, particularly rice, continued to squeeze households. Net trade also weighed on growth, with exports falling faster than imports amid the impact of higher U.S. tariffs. Although Japan reached a trade agreement with the Trump administration in September, Japanese firms still face a 15% tariff on exports to the U.S. Meanwhile, both government spending and capital expenditure strengthened, rising at the fastest pace in five quarters.