SINGAPORE, March 4, 2025 – The Japanese economy is projected to grow at 1.3 percent in 2025, driven by sustained wage gains, strong business investments, and resilient performance in goods exports and tourism. While inflation has eased, it is expected to remain above the Bank of Japan’s (BOJ) target, with CPI (excluding fresh food) inflation estimated to average 2.2 percent in 2025. Amid ongoing uncertainties surrounding the growth and inflation outlook, the BOJ should maintain a flexible, data-driven approach to monetary policy. Meanwhile, with public debt at elevated levels and rising fiscal pressures due to an aging population, stronger fiscal consolidation efforts will be needed to strengthen fiscal resilience. Recent developments and outlook Japan’s economic growth moderated to 0.1 percent in 2024 following the post-pandemic rebound. Although the economy contracted sharply in Q1 2024, growth rebounded over the subsequent three quarters, driven by strong consumption as wage hikes from the “Shunto” wage negotiations began to take effect. Wage increases are expected to remain high on account of a tight labor market and a shift in firm behavior. Corporate earnings are also expected to contribute to higher wages and increased capital investment in 2025, further boosting domestic demand. Goods exports and tourism are projected to remain robust, provided there is no sharp slowdown in major global economies. Risks, vulnerabilities, and challenges Japan’s macrofinancial outlook is skewed to the downside, reflecting substantial uncertainties, particularly from external factors. Key risks include a spike in global commodity prices triggered by escalating geopolitical tensions and a pronounced economic slowdown in other major economies. (REF &Photo . ASEAN+3 Macroeconomic Research Office