Japan's GDP falls short of expectations

TOKYO

Japanese economic growth fell short of market expectations in late 2025, official data showed Monday, adding to pressure on Prime Minister Sanae Takaichi to stimulate activity after her recent election landslide.

Gross domestic product (GDP) in the world's fourth-biggest economy expanded by just 0.1 percent in the fourth quarter, undershooting market forecasts of growth of 0.4 percent.

The growth follows a contraction of 0.7 percent -- revised downwards from an earlier reading of minus 0.6 percent -- in the previous quarter.

Growth in private consumption, and private residential and corporate investments, contributed to the expansion, according to the cabinet office data.

In calendar 2025, Japan's economy grew 1.1 percent, after a 0.2-percent contraction in 2024, the data from the cabinet office showed.

On an annualised basis, GDP expanded by 0.2 percent in the three months through December, significantly weaker than the median economist estimate of 1.6 percent growth.

Takaichi became Japan's first woman prime minister in October and called snap elections for February 8.

The vote saw her Liberal Democratic Party (LDP) win a historic two-thirds majority in the lower house.

In November, her government pushed through a 21.3-trillion-yen ($139-billion) stimulus package aimed at boosting growth.

It included energy subsidies, cash handouts, and investment incentives in key fields like semiconductors and artificial intelligence.

It also included funds for expanded spending on defence, as China increases military activities in the wider region.

Her spending plans have however worried investors.

Japan's debts are more than twice the size of the country's economy, with the highest ratio among advanced economies.

Last month, yields on long-term Japanese bonds hit record highs after Takaichi pledged temporarily to exempt food from a consumption tax to ease the pain of inflation on households.

"The minuscule rebound in activity last quarter may embolden PM Takaichi to press ahead with even more fiscal loosening," Marcel Thieliant at Capital Economics said Monday.

The weak growth "implies that the large supplementary budget passed at the end of November provided no boost to public spending last quarter just yet," Thieliant said in a note.

"In fact, sluggish economic activity increases the chances that Takaichi will not only press ahead with suspending the sales tax on food but enact a supplementary budget during the first half of the fiscal year that starts in April already rather than wait until the end of this year," he added.

The weak growth is however not expected to deter the Bank of Japan from hiking interest rates later this year, according to economists.