Our economic outlook for Japan
April 25, 2025
Our outlook for year-end 2025
Less than 1%
Economic growth,
year over year
Global growth headwinds from U.S. tariffs weigh on our outlook for Japan’s GDP growth. We expect declining price competitiveness and weaker U.S. demand for Japanese goods to dent Japan’s GDP growth by half a percentage point in 2025. We now foresee full-year GDP growth at less than 1%. However, we don’t foresee a material change in domestic dynamics, with a recovery in private consumption likely on the back of upward momentum in wage growth.
Around 2%
Core inflation, year over year
Steady wage growth on the back of strong corporate profits and structural labor shortages will likely support a recovery in domestic consumption and keep core inflation robust at around 2% in 2025. More important, a virtuous cycle of wages and inflation will continue to strengthen—a positive development after decades of economic and market stagnation.
1.0%
Monetary policy rate
Global trade developments are putting downward pressure on economic growth as rising wages stoke inflation. These countervailing forces may compel the BoJ to take a prolonged wait-and-see approach toward its policy rate. As wage negotiations secure strong pay raises for unionized workers, fueling inflationary pressures, we continue to expect the BoJ to raise the policy rate, currently at 0.5%, at its July meeting, on the way to a year-end rate of 1.0%. However, amid heightened trade uncertainty, risks are growing for no change at the July meeting and a lower year-end policy rate. The BoJ’s next policy announcement is scheduled for Thursday, May 1.
Around 2.5%
Unemployment rate
Japan is confronted by a structural labor shortage, which has recently been somewhat alleviated by a greater labor participation rate for women and older people, and by the addition of more foreign workers. The shortage is nonetheless likely to exert continued upward pressure on wages.
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