Japan’s economy softened in the first quarter, posting a 0.2% drop in real terms from January through March. This marks a step back from the previous quarter when activity had shown a modest gain, signaling a slower start to the year as domestic demand struggled to pick up momentum. While the year-on-year comparison still shows a small expansion of 0.2% from the same period a year earlier, these figures underline ongoing headwinds that have dampened the recovery. The latest data are preliminary estimates from the Cabinet Office, reflecting the fragile balance Japan faces amid a global backdrop of price pressures and shifting external conditions.
In inflation-adjusted terms, the economy has not yet regained its pre-pandemic level. Since early 2021, quarterly results have alternated between small advances and mild declines, painting a picture of a fragile rebound rather than a robust revival. The current downturn appears connected to international price pressures and the domestic response to global inflation trends. Analysts have pointed to the impact of anti-contagion measures used to curb virus variants during the period, which weighed on activity across several sectors and delayed a stronger rebound.
The household sector remained largely flat in spending, while some financial indicators pointed to investor caution. Equity investments by institutions slipped by roughly 0.6% in the quarter, suggesting a conservative stance amid uncertain market conditions. Government spending also declined by about 3.6%, even as authorities introduced a sizable relief package late last year and prepared for a broader stimulus plan expected to gain approval in the coming weeks. These dynamics highlight how fiscal policy and market sentiment interact to shape quarterly GDP outcomes and the path of domestic demand.
On the trade front, exports climbed by around 1.1% from the prior quarter, signaling stronger external demand for Japanese manufactured goods. Yet the import side intensified as well, driven by higher input costs and a softer currency. Imports rose by about 3.4%, reducing the overall GDP figure by roughly 0.4 percentage points. The net effect emphasizes how exchange-rate movements and commodity prices influence the balance of trade and the broader growth trajectory.