The Japanese government announced the latest economic data on Monday (February 16), revealing that the country’s Gross Domestic Product (GDP) for the fourth quarter of 2025 increased by 0.1% compared to the previous quarter, translating to an annualized growth rate of 0.2%. This marked the end of the contraction seen in the previous quarter and helped avoid a “technical recession,” although the growth rate fell far below the market expectation of 1.6%.
The report indicated that the negative impact on Japanese exports due to the reduction of U.S. tariffs on Japanese goods from the previous high levels to 15% is gradually diminishing.
These data suggest that the Japanese economy is slowly recovering, which could give the Bank of Japan confidence to continue its normalization of interest rates (rate hikes) process.
The data showed that private consumption, which accounts for more than half of Japan’s economic output, only saw a marginal increase of 0.1%. This was primarily due to the persistently high food costs continuing to weigh on household expenditures.
Meanwhile, private residential investment stood out with a substantial real growth of 4.8%, rebounding significantly from the steep decline of 8.4% in the previous quarter.
Corporate capital expenditure increased by 0.2%, turning positive from negative, yet still below Reuters’ predicted 0.8%. This data reflects the ongoing weakness in Japan’s economic recovery, with private consumption offsetting the sluggishness in exports and public spending.
The report also summarized the full-year performance of 2025, indicating that Japan’s real GDP grew by 1.1% for the entire year, with nominal GDP growth at 4.5%.
These figures show that Japan’s economy maintained a moderate growth trend throughout 2025, with nominal growth significantly outpacing real growth, reflecting a long-term environment of rising prices.
Following her recent election victory, Prime Minister Sanae Takaichi is gearing up to stimulate the economy through expansionary fiscal policies. Takaichi has stated that through “active” fiscal policies, she aims to boost investment to support economic growth.
The Takaichi government has announced a record budget allocation of 122 trillion yen for the next fiscal year and pledged to suspend the consumption tax on food for two years to alleviate inflationary pressures.
Additionally, Takaichi plans to increase defense spending to 2% of GDP. Bruce Kirk, Chief Japan Equity Strategist at Goldman Sachs, stated to CNBC that defense will be the next catalyst to drive the Japanese stock market higher.
In terms of the external environment, Japan is currently in detailed negotiations with its second-largest trading partner, the United States, regarding a $550 billion investment commitment. With the U.S. reducing tariffs on Japanese goods to 15%, the decline in exports has started to stabilize.
Market observers are closely following the upcoming meeting between Sanae Takaichi and U.S. President Donald Trump. Japanese Minister of Economy, Trade, and Industry Ryo Akazawa expressed his hope to finalize preliminary cooperation projects before the summit. Analysts expect that the two sides will initiate a series of collaborations focusing on industrialization, factory automation, and revitalization of the shipbuilding industry.
Following the data release, the Nikkei 225 Index saw a slight opening increase, but the Japanese yen weakened against the U.S. dollar to 153.06. The Bank of Japan (BOJ) remains cautiously optimistic, having recently raised the economic growth forecasts for the fiscal years 2025 and 2026, and anticipates that with government measures and a loose monetary environment, prices and wages will form a benign cycle.
Although the inflation rate dropped to 2.1% in January, this marks the 45th consecutive month where Japanese prices have exceeded the Bank of Japan’s 2% target.