Japan's economy contracts less than expected third quarter of 2025

Japan's economy contracted less than expected in the third quarter of 2025, preliminary estimates released by the Cabinet Office showed Monday.

Japan's seasonally adjusted gross domestic product contracted 0.4% quarter-on-quarter in the three months through to September, following an upwardly revised 0.6% increase in the previous quarter.

The latest reading was better than the minus 0.6% FXStreet consensus forecast, but stood out as the first contraction since the first quarter of 2024.

Meanwhile, GDP fell 1.8% on an annualised basis in the third quarter, compared to a forecasted 2.5% decline and after a 2.3% increase in the previous quarter.

The Cabinet Office report revealed that the decline was driven by a drop in private demand as private residential investment fell during the period, with economic growth further hindered by a slump in the exports of goods and services amid the ongoing US tariff policy.

Norihiro Yamaguchi, lead economist at Oxford Economics, said: "We believe the strong decline in residential investment reflects a one-off decline in housing starts, largely driven by the recent amendments to the Building Standards Act.

"Despite a dip in GDP in Q3, we maintain our view that the economy will gradually improve in 2026. Consumption should improve modestly, supported by moderate gains in households' real incomes."