2026-02-16
Japan's Real GDP Narrowly Turns Positive to 0.1%; Dual Weakness in Domestic and External Demand Casts Shadows over 2026 Recovery
According to the latest released data, the annual contribution to Japan's real GDP for the period ending November 2025 (Q4) recorded 0.1%, successfully reversing the negative contribution trend of -0.4% in the previous quarter. However, this improvement of merely 0.5 percentage points indicates that economic momentum is extremely fragile, barely avoiding the edge of a technical recession. Compared to the 0.6% growth seen in the second quarter of 2025, the strength of this rebound is clearly insufficient, showing that the Japanese economy remains in a stagnant state of "skimming the surface" at the end of 2025, with recovery momentum far lagging behind the V-shaped reversal originally anticipated by analysts.
A deeper breakdown of data and market information reveals that the primary reason for this lower-than-expected GDP performance lies in the "stalling of the dual engines of domestic and external demand." Externally, impacted by the new round of US tariff policies and Japan-China diplomatic friction, the contribution from exports—originally a pillar of the Japanese economy—dropped to zero or even became a drag. Internally, private consumption and corporate capital expenditure (Capex) performed weakly, recording only marginal growth (approximately 0.1%). Soaring import prices continue to erode household real purchasing power, preventing domestic demand from effectively taking over as a growth driver.
Institutional analysis points out that the Japanese economy is currently facing dual headwinds of a structural and policy nature. On one hand, while the long-term weakness of the yen benefits paper profits, it has also driven up energy and raw material costs, triggering "cost-push inflation" and weakening the positive cycle of the wage-price spiral. On the other hand, in order to curb inflation expectations, the Bank of Japan (BOJ) has raised the policy interest rate to 0.75% (a new high since 1995). The process of monetary policy normalization poses substantial pressure on borrowing costs and investment appetite in the short term, further cooling business sentiment.
Looking ahead, in the short term (1-2 months), market focus will be locked on whether the fiscal stimulus package promised by Prime Minister Sanae Takaichi can boost Q1 domestic demand through measures such as suspending the consumption tax or providing subsidies. However, regarding the medium term (3-6 months), the Japanese economy still faces the risk of "stagflation." If global demand continues to cool due to geopolitics and domestic wage growth fails to keep up with the pace of inflation, the full-year GDP growth rate for 2026 may be revised down to the 0.8%-1.0% range, leaving the BOJ with even more constrained policy space between "maintaining growth" and "fighting inflation."
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