Japan’s economy demonstrated stronger than anticipated growth in the fourth quarter of 2025, outpacing economists’ predictions, as revealed by preliminary government data.
The country’s Gross Domestic Product (GDP) expanded by 0.7% on a quarter-on-quarter basis, surpassing the 0.3% rise forecasted by economists surveyed by Reuters. This marked an improvement from the revised 0.4% increase recorded in the previous quarter. The unexpected growth was largely fueled by a significant boost in exports, which offset a slight decline in domestic demand.
On an annualized scale, Japan’s GDP rose by 2.8%, exceeding the 1% growth estimate predicted by Reuters. However, despite this quarterly success, the overall annual GDP growth decelerated to 0.1%, a sharp drop from the previous year’s 1.5% expansion. The positive results nonetheless provided a counterbalance to the broader slowdown.
Following the release of the GDP data, Japan’s Nikkei 225 stock index decreased by 0.29%, while the yen appreciated by 0.2%, trading at 152.02 against the US dollar. These financial market reactions underscore the cautious optimism surrounding Japan’s economic prospects amid ongoing monetary policy adjustments.
The recent economic data emerges in the context of Japan’s central bank decision to raise interest rates to 0.5%, its highest level since October 2008. This increase aligns with the broader monetary tightening strategy observed in major economies worldwide. In support of these measures, Japan’s household spending in December rose by 2.7% from the previous year, exceeding economists’ expectations. This marked the first year-on-year increase in household spending since July 2024 and adds to the rationale for continued financial policy adjustments.
Japan’s economy has shown resilience with robust export growth driving an unexpected GDP surge in the fourth quarter of 2025. While domestic demand remains a concern, the country’s adaptability and strategic monetary policies convey a cautiously optimistic outlook for its economic trajectory.
