Japan narrowly escapes recession with 0.1% growth in Q4
What's the story
Japan's economy grew by a mere 0.1% in the fourth quarter of 2025, narrowly escaping a technical recession. The growth was a reversal from the 0.7% contraction in Q3 but fell short of economists' expectations of a 0.4% expansion, Reuters reported. A technical recession is usually defined as two consecutive quarters of negative economic growth.
Economic performance
Annualized GDP growth misses forecasts
On an annualized basis, Japan's economy grew by 0.2%, missing forecasts of 1.6%. This comes after a 2.3% contraction in the previous quarter. Compared to a year ago, Q4 GDP grew by 0.1%, down from Q3's 0.6%. The modest growth was driven by private consumption, which offset weaknesses in exports and public spending, according to data from Japan's Cabinet Office.
Market response
Bank of Japan revises economic growth forecast
Following the data release, the Nikkei 225 opened up by 0.12%, while the yen weakened against the dollar. In January, the Bank of Japan revised its economic growth forecast for fiscal year ending March 2026 to 0.9% from an earlier estimate of 0.7%. The central bank also raised its fiscal 2026 outlook to 1% from a previous prediction of 0.7%, expecting moderate expansion as other countries return to growth.
Debt concerns
Concerns over debt and interest rate hikes
Japan's debt has now surpassed twice its GDP, even after a massive stimulus package. This has raised concerns about the sustainability of the economic recovery. Economists predict that the Bank of Japan may raise interest rates later this year to combat inflation, but such a move could further complicate matters for consumers and businesses trying to recover from economic setbacks.