Japanese GDP in the fourth quarter only slightly increased by 0.1%, and the weak recovery momentum poses a challenge to the Koga Cabinet.

The Japanese economy grew by 0.1% in the fourth quarter of 2025 compared to the previous quarter, barely avoiding a technical recession and reversing the 0.7% contraction in the third quarter, but the Gross Domestic Product (GDP) did not reach the economists' expected growth of 0.4%. On an annualized basis, Japan's output increased by 0.2% in the fourth quarter of 2025, falling short of the expected 1.6%; output in the previous quarter had dropped by 2.3%. A technical recession is usually defined as two consecutive quarters of contraction. After the data was released, the Nikkei 225 index opened up by 0.12%, but the yen against the US dollar exchange rate fell by 0.25%. Looking at specific sectors, private consumption accounted for more than half of economic output in Japan in the fourth quarter, increasing by 0.1%, in line with market expectations. However, this number fell from the 0.4% growth in the previous quarter. Capital expenditure, a key driver of growth in private demand, also grew at a slow pace of 0.2% in the fourth quarter, while public investment was at 0.8%; net external demand (exports minus imports) did not contribute to or hinder growth. Exports saw a slight decline after the United States imposed a 15% tariff on almost all Japanese imports. In response, Kazutaka Maeda, an economist at the Meiji Yasuda Institute for Comprehensive Research, said, "The impact of the tariffs appears to have peaked in July to September, but based on the latest performance, companies may continue to adopt a certain degree of caution in the future." Weak Recovery Momentum Clearly, the weaker-than-expected performance of GDP in the fourth quarter poses a major challenge for Prime Minister Manae Takamichi's government, as the pressure of living costs continues to undermine market confidence and domestic demand. This month, the ruling party led by Takamichi won a landslide victory in the elections. Following the victory, Takamichi stated last Monday (February 9) that she would promote investment through active fiscal policies to support economic growth, including targeted public spending in critical areas related to economic security to increase investment efforts. Economist Maeda from Meiji Yasuda pointed out, "The latest data shows that the momentum of economic recovery is clearly not strong enough, with consumption, capital expenditure, and exports - the areas we originally expected to grow - not meeting expectations." Some economists also predict that the Japanese economy will continue to expand moderately in the coming months, but the weakness in the fourth quarter suggests that the overall economic recovery still faces obstacles. Shinichiro Kobayashi, Chief Economist at Mitsubishi UFJ Research and Consulting, said, "Whether the economy can achieve sustainable growth depends on whether real wages can steadily return to positive growth. In this sense, the key lies in the results of this year's wage negotiations in the coming months." Kobayashi also stated that the GDP report is unlikely to affect the monetary policy decisions of the Bank of Japan. He pointed out, "Raising interest rates will not cause economic stagnation, and the focus of the Bank of Japan is likely to be on how to control inflation."