Japan’s economy remained resilient in 2025, with the impact of U.S. tariff policies proving relatively modest. Following a rate increase in January, the Bank of Japan kept its policy rate unchanged but moved to sell ETFs and other market assets. In October 2025, the Takaichi administration took office, advocating a “responsible, proactive fiscal policy.” Looking ahead, Japan’s economy in 2026 is expected to remain solid supported by consumption driven by positive real wage growth and investment focused on efficiency. Inflation is shifting from cost-push to demand-pull. With the price stability target now achieved, further rate hikes by the Bank of Japan are anticipated. Under household support measures and bold investment promotion policies introduced by the Takaichi administration, interest rates are likely to rise. However, economic growth underpinned by proactive fiscal policy should boost tax revenues, helping to offset upward pressure on rates stemming from fiscal concerns.
Full Japan Outlook 2026: pdf HERE
By Hitoshi Asaoka, Chief Strategist and Yuko Iizuka Economist, Asset Management One Co., Ltd