SINGAPORE, March 4, 2025 – Japan’s economy is projected to expand by 1.3 percent in 2025, supported by steady wage growth, strong business investments, and resilient exports and tourism. Inflation has eased but is expected to stay above the Bank of Japan’s (BOJ) target, with core CPI (excluding fresh food) averaging 2.2 percent in 2025.
Given uncertainties around growth and inflation, the BOJ is expected to keep a flexible, data-driven approach to monetary policy. At the same time, Japan’s public debt remains high, and rising fiscal pressures from an aging population call for stronger fiscal consolidation to build long-term resilience.
Recent developments and outlook
Japan’s growth slowed to 0.1 percent in 2024 after the post-pandemic rebound. The economy shrank sharply in Q1 2024 but recovered over the next three quarters. The rebound was driven by stronger household spending as wage gains from the Shunto negotiations took effect.
Wage increases are set to stay strong, supported by a tight labor market and shifting corporate behavior. Higher corporate earnings are also expected to boost wages and drive new capital investments in 2025, further lifting domestic demand. Goods exports and inbound tourism should remain solid, provided major global economies avoid a sharp slowdown.
Risks and challenges
Japan’s outlook leans to the downside due to external risks. A surge in global commodity prices—possibly triggered by rising geopolitical tensions—could weigh on growth. Another key risk is a significant slowdown in major economies, which would affect Japan’s exports and investment momentum.
(REF & Photo: ASEAN+3 Macroeconomic Research Office)
