Japan Q3 GDP Slips 0.4% Quarter-on-Quarter, But Beats Expectations
Japan’s economy cooled in the third quarter of 2025, but the slowdown was milder than markets anticipated. A solid rise in capital expenditure helped cushion the impact of weak external demand and cautious household spending, offering a mixed picture for growth momentum and the policy outlook.
Preliminary data show real GDP fell 0.4% quarter-on-quarter, outperforming consensus for a 0.6% decline. On an annualized basis, output contracted 1.8%, better than expectations of roughly a 2.5% drop. The result marks a pullback from Q2’s 0.5% quarterly gain (1.6% annualized) as both domestic and external engines of growth lost steam.
Under the hood, private consumption—about half of the economy—barely advanced, up 0.1% and exactly in line with forecasts, reflecting ongoing pressure on households. By contrast, capital expenditure rose 1.0%, beating expectations and signaling that firms continue to invest despite softer demand. External demand remained a drag as net exports subtracted 0.2 percentage points from growth, with exports down 1.2% on the quarter. Domestic demand also shaved 0.2 points off GDP. The GDP deflator increased 2.8% year-on-year, matching estimates but easing from 3.0%, a detail the Bank of Japan will weigh as it assesses the durability of underlying inflation and the pace of any policy normalization.
Key Points – Preliminary Q3 2025 GDP: -0.4% q/q (vs. -0.6% expected) – Annualized GDP: -1.8% (versus a consensus near -2.5%) – Private consumption: +0.1% q/q (in line with expectations) – Capital expenditure: +1.0% q/q (above the 0.3% consensus) – Net exports: -0.2 percentage points contribution; exports -1.2% q/q – GDP deflator: +2.8% y/y (matching estimates, down from 3.0%)
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