Economic Overview - Japan's economy has entered a phase of negative growth, with a reported GDP decline of 1.8% in Q3, marking a return to negative growth since Q1 2024, primarily due to a sharp contraction in external demand [1] - The contribution of external demand to Japan's economic growth in Q3 was -0.2 percentage points, exacerbated by increased tariffs on Japanese goods, particularly automobiles, which saw tariffs rise from 2.5% to 15% [1] Domestic Demand Challenges - Domestic demand remains weak, with personal consumption, which accounts for over half of Japan's economy, showing only a slight increase of 0.1% quarter-on-quarter, while residential investment fell by 9.4% [1] - High inflation and declining real wages have led to a persistent decrease in consumer spending willingness [1] Political and Economic Response - In response to the economic downturn, the government approved a stimulus package worth 21.3 trillion yen (approximately 135.4 billion USD) aimed at addressing rising prices and boosting investment in sectors like semiconductors and AI [2] - However, the stimulus plan relies heavily on fiscal expansion and monetary easing without addressing necessary structural reforms [2] Structural Issues - Japan's government debt has reached approximately 263% of GDP, limiting the effectiveness of further spending and increasing long-term interest rates, which could pressure government debt repayment and reduce investment in innovation [3] - The aging population, with 29% aged 65 and above, contributes to labor shortages and a shrinking consumer market, while the automotive industry struggles to adapt to the shift towards electric vehicles [3] Market Sentiment and Future Outlook - The recent tensions in Japan-China relations, exacerbated by controversial statements from Prime Minister Kishi, have led to a potential loss of 11.5 billion to 14 billion USD in tourism revenue, further impacting GDP growth by 0.29 to 0.36 percentage points [2] - Analysts suggest that Japan's economy may continue to oscillate around the growth line without effective reforms, and the current government strategies may only provide temporary relief without addressing deeper structural issues [4]