Official data released on Monday revealed that Japanese economic growth in late 2025 fell short of market expectations, increasing pressure on Prime Minister Sanae Takaichi to boost activity following her recent election victory.
Japan’s gross domestic product (GDP), the fourth-largest in the world, expanded by a mere 0.1 percent in the fourth quarter, below the anticipated growth rate of 0.4 percent.
The latest growth figures marked an improvement from the previous quarter’s 0.7 percent contraction, which was revised down from an initial estimate of minus 0.6 percent.
The expansion was mainly driven by growth in private consumption, as well as investments in private residential and corporate sectors, according to data from the cabinet office.
In the calendar year 2025, Japan’s economy grew by 1.1 percent, rebounding from a 0.2 percent contraction in 2024, as reported by the cabinet office.
On an annualized basis, GDP grew by 0.2 percent in the final three months of the year, significantly lower than the median economist forecast of 1.6 percent growth.
Prime Minister Takaichi, who assumed office as Japan’s first female prime minister in October, called for snap elections on February 8, resulting in her Liberal Democratic Party (LDP) securing a historic two-thirds majority in the lower house.
In November, the government approved a 21.3-trillion-yen ($139 billion) stimulus package aimed at stimulating growth, which included energy subsidies, cash grants, and investment incentives in strategic sectors like semiconductors and artificial intelligence.
The package also allocated funds for increased defense spending, as China’s military activities in the region escalate.
Despite the government’s spending initiatives, concerns have been raised among investors due to Japan’s high debt levels, which exceed twice the size of the country’s economy, presenting the highest ratio among advanced economies.
In response to inflation concerns, Takaichi promised a temporary exemption on food from the consumption tax, leading to record-high yields on long-term Japanese bonds last month.
Marcel Thieliant from Capital Economics commented on Monday, stating that the marginal growth in the last quarter could potentially prompt Prime Minister Takaichi to pursue further fiscal stimulus measures.
Thieliant noted that the weak economic performance indicated that the supplementary budget enacted in November did not immediately boost public spending in the last quarter.
He also suggested that the sluggish growth might prompt Takaichi to implement additional fiscal measures sooner rather than later.
Despite the subdued growth, economists do not anticipate that the Bank of Japan will delay its plans to raise interest rates later this year.