Japan Avoids Technical Recession as Fourth-Quarter Growth Reaches 0.1%

Japan’s economy returned to growth in the fourth quarter of 2025, narrowly avoiding a technical recession, but the rebound was weaker than expected.

Official data showed that Japan’s gross domestic product (GDP) expanded 0.1% in the October–December period compared with the previous quarter. The result followed a 0.7% contraction in the third quarter.

Economists had forecast a 0.4% quarterly expansion, meaning the actual figure fell short of expectations.

A technical recession is commonly defined as two consecutive quarters of economic contraction. The modest growth in the fourth quarter prevented Japan from entering that territory.

Annual Growth Also Below Forecasts

On an annualised basis, Japan’s economy grew 0.2% in the fourth quarter, missing expectations of 1.6%. This followed a 2.3% decline in the previous quarter.

Compared with the same period a year earlier, GDP rose 0.1%, slowing from 0.6% growth recorded in the third quarter.

According to Japan’s Cabinet Office, private consumption supported the expansion. However, weaker exports and lower public spending limited overall growth.

Market Reaction

Following the data release, the Nikkei 225 opened slightly higher, gaining 0.12%.

The Japanese yen weakened 0.25% to 153.06 against the US dollar.

Bank of Japan Outlook

The Bank of Japan recently raised its economic growth forecast for the fiscal year ending March 2026 to 0.9%, up from 0.7%. It also increased its fiscal 2026 projection to 1%.

The central bank said it expects moderate expansion as global growth improves and highlighted a cycle of rising wages and prices supported by government measures and accommodative financial conditions.

Political and Trade Developments

The data comes as Japan works with the United States on a $550 billion investment pledge under a trade agreement.

Japan’s Economy Minister Ryosei Akazawa has expressed hope that initial projects under the pledge will be finalized before Prime Minister Sanae Takaichi meets US President Donald Trump.

Takaichi recently led the ruling Liberal Democratic Party to a strong election victory and has pledged to support economic growth through proactive fiscal measures. She has also proposed suspending food taxes for two years and increasing defence spending to 2% of GDP.

Japan’s inflation slowed to 2.1% in January, the lowest level since March 2022. However, prices have remained above the Bank of Japan’s 2% target for 45 consecutive months.

Despite avoiding recession, the latest figures suggest Japan’s recovery remains fragile, with growth momentum weaker than analysts had anticipated.