Japan's real gross domestic product grew at an annualized rate of 0.2% in the October-December quarter of 2025, falling short of market estimates. Preliminary data from the Cabinet Office showed a 0.1% quarter-on-quarter rise, marking the first positive growth in two quarters. The full-year growth rate for 2025 reached 1.1%, the highest since 2022.
Japan's economy showed modest growth in the final quarter of 2025, with real gross domestic product expanding at an annualized rate of 0.2%, according to preliminary data released by the Cabinet Office on February 16, 2026. This figure missed the median market estimate of 1.6% from a Reuters poll of economists and followed a revised 2.6% contraction in the previous quarter, as corporate investment just reversed its decline.
On a quarter-on-quarter basis, GDP rose 0.1%, below the anticipated 0.4%. Private consumption, which makes up more than half of economic output, increased 0.1%, matching estimates but cooling from a 0.4% rise in the prior period. Persistently high food costs continue to weigh on household spending.
Capital spending, a key driver of private demand-led growth, grew 0.2%, short of the 0.8% expected in the poll. Net external demand contributed nothing to growth, an improvement from a 0.3 percentage point drag in July-September. Exports saw a milder decline following the U.S. formalization of a 15% tariff on nearly all Japanese imports, down from higher rates on autos and other goods.
The Bank of Japan maintains cautious confidence amid fading drags from U.S. tariffs, as it continues to normalize monetary policy by raising interest rates. Fresh from an election victory, Prime Minister Sanae Takaichi's government plans to boost investment through targeted public spending in sectors vital to economic security.
Economists forecast gradual expansion ahead, with average annualized growth of 1.04% in the first quarter and 1.12% in the second quarter of 2026, according to a Japan Center for Economic Research survey. For the full year 2025, real GDP growth reached 1.1%, the highest since 2022.
