Japan¡¯s economy barely grew in the fourth quarter of 2025, surprising economists and highlighting the challenges faced by Prime Minister Sanae Takaichi as she works to reflate the economy.
In the three months ended December, gross domestic product rose at a 0.2% annualized rate.
The median estimate was 1.6%, according to Reuters.
In the third quarter of 2025, the economy contracted 2.3%. A technical recession is normally two quarters of negative growth.
Japan¡¯s economy grew 0.1% quarter-on-quarter in the fourth quarter, preliminary data from the Cabinet Office showed on Monday. A Reuters estimate earlier this month had forecast the number to be 0.4%.
Full-year growth was 1.1%, the fastest expansion since 2022.
Private consumption ¡ª which is more than half of GDP in Japan ¡ª rose 0.1% quarter-on-quarter. Capital investment grew 0.2%, while exports and imports both fell 0.3%.
Domestic demand remained fragile as inflation remained high. Average inflation excluding fresh foods and energy was 3% for 2025.
¡°Core consumer prices, excluding fresh food, in February this year are highly likely to fall into the 1% range year-on-year for the first time in nearly four years,¡± wrote Takahide Kiuchi, executive economist at the Nomura Research Institute.
¡°Thereafter, inflation is expected to hover at around 2% for the time being.¡±
In the past, Takaichi has expressed support for economic stimulus, and she pushed through a ?21.3 trillion stimulus package one month into her premiership.
¡°Domestic demand made a positive contribution overall, resulting in modest positive growth for the economy as a whole,¡± Chief Cabinet Secretary Minoru Kihara said on Monday morning.
¡°We expect that improvements in the income environment will support consumption going forward.¡±
After the Liberal Democratic Party¡¯s victory at the polls earlier this month, a record ?122.3 trillion budget is slated to receive legislative approval in the coming months.
The weaker-than-expected growth weighed on the equity market on Monday morning, though stocks rebounded in the afternoon, with the Nikkei 225 index ending the day down 0.24%.
The yen traded steadily at around ?153 to the dollar.
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