Japan GDP growth to moderate to 0.8% in 2026: AMRO

While domestic demand is expected to remain the main growth driver, supported by business investment and private consumption, the near-term outlook is clouded by persistent trade uncertainty, a potential escalation of US protectionist measures and a sharper global slowdown, AMRO said in its 2025 Annual Consultation Report released today. Heightened geopolitical tensions and volatile financial markets have also led to sharp yen fluctuations and pushed long-term bond yields to a 27-year high.

Inflation, which spiked in 2025 due to food supply shocks and higher import costs from a weak yen, is projected to ease. Core inflation is forecast to decline from 3 per cent in 2025 to 2.2 per cent in 2026, although nominal wage growth is expected to remain firm amid a tight labour market.

AMRO noted that Japan is transitioning into a new economic phase, marked by rising inflation expectations and the end of the Bank of Japan’s ultra-loose monetary policy. With the policy rate at around 0.75 per cent, further gradual and data-dependent rate hikes may be warranted, supported by clear communication and continued tapering of asset purchases.

The report also highlighted longer-term challenges, including high public debt, population ageing and climate-transition spending pressures. It called for agile and targeted fiscal policy, sustained medium-term consolidation and structural reforms to lift productivity, including innovation, technology adoption and labour market flexibility.

Despite improved growth momentum in 2025, AMRO cautioned that careful policy calibration will be essential to sustain Japan’s transition and safeguard macroeconomic stability amid global uncertainty.

Fibre2Fashion News Desk (CG)