JAPAN’S economic rebound faltered in the final quarter of 2025, official data revealed today, intensifying pressure on Prime Minister Sanae Takaichi to stimulate activity following her recent electoral triumph.
Gross domestic product expanded by a mere 0.1 per cent in the October–December period, falling short of market expectations of 0.4 per cent growth.
AFP cited today that the modest growth follows a revised contraction of 0.7 per cent in the third quarter, down from an initial estimate of minus 0.6 per cent.
Cabinet office data attributed the slight expansion to improvements in private consumption, residential investment, and corporate investment, though the pace remains subdued.
On a calendar-year basis, Japan’s economy grew 1.1 per cent in 2025, recovering from a 0.2-per cent contraction in 2024.
Annualised figures for the fourth quarter painted an even bleaker picture, with GDP rising just 0.2 per cent, far below the median economist forecast of 1.6 per cent.
Takaichi, Japan’s first female prime minister since her October election, secured a historic two-thirds majority for her Liberal Democratic Party in February’s snap vote.
Her government swiftly enacted a 21.3-trillion-yen (US$139-billion) stimulus package in November, targeting energy subsidies, direct cash handouts, and incentives for strategic sectors including semiconductors and artificial intelligence.
The package also expanded defence spending in response to growing military activity by China in the region.
Nevertheless, investor apprehension persists. Japan’s national debt exceeds twice the size of its economy, the largest ratio among advanced nations.
Last month, long-term bond yields hit record highs after Takaichi pledged a temporary exemption on consumption tax for food to alleviate household inflationary pressures.
“The minuscule rebound in activity last quarter may embolden PM Takaichi to press ahead with even more fiscal loosening,” noted Marcel Thieliant of Capital Economics.
He added that the weak growth “implies that the large supplementary budget passed at the end of November provided no boost to public spending last quarter just yet,” and suggested that further measures, including an earlier supplementary budget, could be forthcoming in the first half of the fiscal year starting in April.
Despite the subdued performance, economists do not anticipate that the Bank of Japan will be deterred from raising interest rates later in 2026, as policymakers balance the need for stimulus with ongoing inflation and debt concerns.
The disappointing growth underscores the delicate challenge facing Takaichi’s administration: to sustain economic momentum, support key industries, and address household cost pressures while navigating one of the world’s most indebted economies. - February 16, 2026
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