Japan Economy Expands at Annualized 1.2% in Q3

Japan’s economy advanced at an annualized pace of 1.3% in Q4 2025, much stronger than the initial estimate of a 0.2% expansion and slightly above market forecasts of 1.2%. The revised figure marked a rebound from a 2.6% contraction in Q3, supported mainly by firmer domestic demand. Private consumption remained resilient despite persistent cost-of-living pressures, while government spending accelerated, partly reflecting Tokyo’s recent fiscal stimulus aimed at easing household burdens and supporting economic activity. Business investment also rebounded solidly after stagnating in the previous quarter, signaling improved corporate spending. Meanwhile, net trade did not contribute to growth, as both exports and imports remained in contraction, amid softer demand at home and abroad and lingering uncertainty after the September trade deal with the U.S. imposing a 15% baseline tariff on most Japanese goods.

Japan’s economy grew at an annualized pace of 0.2% in Q4 2025, reversing a revised 2.6% contraction in the previous quarter but missing market forecasts of a 1.6% growth, preliminary data showed. The modest rebound was supported by a recovery in business spending, a slight positive contribution from net trade, and continued government expenditure. However, private consumption, which accounts for more than half of economic output, grew the least in a year, reflecting lingering cost pressures, notably food prices, and highlighting the uneven nature of Japan’s growth momentum heading into 2026.

Japan’s economy shrank 2.3% annualized in Q3 2025, steeper than the initial estimate of a 1.8% drop and market estimates of a 0.5% decline. It marked the first yearly contraction in six quarters and the fastest pace in two years, reversing a downwardly revised 2.1% expansion in Q2, with capital expenditure falling for the first time in three quarters as higher borrowing costs discouraged investment. Net exports also weighed on growth, as exports declined significantly faster than imports after the U.S. imposed a 15% baseline tariff on most Japanese goods, despite a trade deal reached in September. Meanwhile, private consumption posted the smallest gain in three quarters as rising living costs, particularly higher rice prices, continued to strain households. Meanwhile, government spending slowed notably, offering limited support to overall activity.