Preliminary government data shows that Japan's economy shrank for the first time in the year, with exports falling sharply in the March quarter.

The GDP figure is poorer than the 0.1% contraction expected by economists surveyed by Reuters.

Once a year, Japan's GDP signed up 0.7% in the first quarter, also higher than the 0.2% expected in Reuters polls.

Uncertainty caused by trade policies by U.S. President Donald Trump affected Japan's heavy economy, exports fell by a quarter of 0.6% and a 0.8 percentage point decline from GDP.

However, on a year-on-year basis, Japan's GDP grew by 1.7%, the largest expansion since the first quarter of 2023 and performed stronger, while the fourth quarter saw a growth rate of 1.3%.

Japan's GDP data emerged during the country's trade negotiations with the United States, and so far, no concluding transactions have been reached.

On Friday, Japan's top trade negotiator Ryosei Akazawa reportedly said that U.S. tariffs had no significant impact on Japan's first-quarter GDP.

However, he warned that the downside risks to the economy from U.S. trade policy, the government will "take all necessary steps" to support affected companies.

Although Akazawa said that while improvements in employment and wages may constitute a moderate economic recovery, Akazawa said consumer sentiment and consumption that continues to rise in prices remain risky.

Krishna Bhimavarapu, an Asia-Pacific economist with a global consultant in State Street, said Japan's GDP growth figures were lower than his estimates, but also described a 0.6% increase in domestic demand, which was "highlight" and "very good."

Bhimavarapu hopes to reach a "reasonable deal" in the coming months, which will mitigate the tariff impact.

"All of this means that the Bank of Japan will sit comfortably on the field until certainty comes up, as we hope there is only one hike this year, maybe the fourth quarter," he added.

The Bank of Japan set the interest rate at 0.5% for its second consecutive meeting on May 1.

The shed also recently warned on May 13 that the country's economy could adapt to the future, saying it was due to the impact of global trade policies.

"Negative demand shocks are expected, including the impact of increased uncertainty on business fixed investment and household consumption, a decrease in U.S. exports and a deterioration in Japan's export margins," Boj wrote.

The central bank pointed out that U.S. tariff policies will put downward pressure on Japan's economic activity and prices.

Despite these growth issues, the central bank appears to continue to raise its policy rates, with some BOJ board members saying the bank's inflation target could reach 2%, and it will continue to raise its policy rates if its economic activity and price prospects are met.

Inflation in Japan has surpassed the 2% target of sheds for three consecutive years, with revenues of 3.6% in the last April.

However, other board members also warned that the outlook is uncertain and that banks should “review the possibility of deviations from their outlook up and down and comply with applicable monetary policy.”