Pedestrians glance at a board featuring the Nikkei Stock Average in Tokyo, February 3, 2026.
Japan’s economy grew a modest 0.1% in the fourth quarter of 2025, just avoiding a technical recession. This growth came after a 0.7% slump in the previous quarter, though it fell short of economists’ predictions of 0.4% growth.
The term “technical recession” typically means two straight quarters of decline. Yearly output showed a slight increase of 0.2%, but economists were expecting a 1.6% rise after a 2.3% drop earlier. Private consumption was the driving force behind this growth, compensating for weaker exports and public spending, according to Japan’s Cabinet Office data.
Following the news, Japan’s stock market, the Nikkei 225, opened up 0.12%, while the yen weakened by 0.25% against the dollar, trading at 153.06.
In January, the Bank of Japan raised its growth forecast for the fiscal year ending in March 2026 from 0.7% to 0.9%. They anticipate a mild economic expansion as global markets stabilize. The BOJ also highlighted a cycle of rising prices and wages, supported by government economic measures.
Japan is also collaborating with the U.S. on a multi-billion dollar investment initiative. Reports indicate that officials are still finalizing the initial projects tied to this investment. Economy Minister Ryosei Akazawa expressed hopes that these details would be settled before Prime Minister Sanae Takaichi meets President Donald Trump.
Takaichi, who recently led her party to an election victory, aims to accelerate economic growth through increased investment. This includes plans to suspend food taxes for two years and increase defense spending to 2% of GDP.
Expert Bruce Kirk, Chief Japan Equity Strategist at Goldman Sachs, believes that Takaichi’s discussions with Trump could lead to numerous announcements involving key sectors like factory automation and shipbuilding. He also noted a recent U.S. document emphasizing maritime cooperation with Japan and South Korea to revitalize shipbuilding.
Japan’s inflation rate has dropped to 2.1% as of January, the lowest since March 2022. This decline comes after 45 months of prices exceeding the BOJ’s 2% target.
The interplay between government actions, market predictions, and consumer behavior is critical in shaping Japan’s economic future. As these factors evolve, the focus remains on how effectively the government can stimulate growth and navigate international relationships.
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