Japan Economy Expands at Annualized 0.2% in Q4

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.

Japan’s economy shrank 1.8% on an annualized basis in Q3 2025, a smaller decline than the 2.5% drop expected and a reversal from the slightly revised 2.3% growth in Q2, flash data showed. It was the first annualized decline in six quarters, driven by the weakest private consumption in three quarters as rising food prices, especially rice, continued to strain households. Net exports also weighed on growth, with exports falling faster than imports following the U.S. decision to impose a 15% baseline tariff on most Japanese goods despite a trade deal reached in September. Still, both government spending and capital expenditure logged their strongest increases in five quarters, supported by front-loaded public investment and business upgrades. The latest figure comes as new Prime Minister Sanae Takaichi seeks to shore up the economy, with her administration preparing measures to ease living-cost pressures and help exporters navigate tariff-related headwinds.