economy

February 16, 2026

Japan's Economy Avoids Technical Recession, But Fourth-Quarter Rebound Misses Expectations

Japan's economy grew 0.1% in the fourth quarter of 2025 compared to the previous three months, narrowly avoiding a technical recession.

Japan's Economy Avoids Technical Recession, But Fourth-Quarter Rebound Misses Expectations

TL;DR

  • Japan's GDP grew 0.1% in Q4 2025, avoiding a technical recession.
  • Growth missed economists' expectations of a 0.4% expansion.
  • Private consumption was the main driver of growth.
  • Exports and public spending weakened.
  • The Bank of Japan raised its economic growth forecasts for fiscal years 2026 and 2027.
  • Japan is collaborating with the U.S. on a $550 billion investment pledge.
  • Discussions are ongoing for the first projects under the U.S.-Japan investment pledge.
  • Japan's Prime Minister Takaichi plans to meet with U.S. President Trump.
  • Takaichi has pledged proactive fiscal policy to boost investment and mentioned suspending food taxes and increasing defense spending.
  • Goldman Sachs strategist Bruce Kirk sees defense as a key catalyst for Japanese equities, anticipating announcements related to U.S.-Japan cooperation.
  • Japan announced a record budget for the fiscal year starting April 1.
  • Inflation in Japan slowed to 2.1% in January but has remained above the Bank of Japan's 2% target for 45 months.

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