Japan fourth-quarter GDP reverses into growth, but misses expectations as rebound underwhelms

Japan's economy grew 0.1% in the fourth quarter of 2025 compared to the previous three months, offering a modest rebound after a sharp contraction earlier in the year.While it was a reversal of the 0.6% contraction in the third quarter, the gross domestic product missed expectations of 0.4% by economists polled by Reuters.On an annualized basis, the economy expanded 0.2%, compared with forecasts of 1.6% and also rebounding from the third quarter's 2.3% decline.On a year-on-year basis, fourth quarter GDP expanded 0.1%, down from 0.6% in the third quarter. The Bank of Japan in January raised its economic growth forecast for the fiscal year ending March 2026 to 0.9% from 0.7%. It also lifted its fiscal 2026 outlook to 1% from 0.7%.The central bank said it expects moderate expansion as other countries return to growth. The BOJ also said it sees a virtuous cycle of rising prices and wages, supported by the government's economic measures and accommodative financial conditions.The data comes as Japan works with the U.S., its second-largest trading partner, on a $550 billion investment pledge under its trade deal with Washington.Public broadcaster NHK reported last Friday that Tokyo and Washington have yet to agree on the first projects tied to the pledge.

Japan Economy Minister Ryosei Akazawa was quoted as saying he hoped the initial projects would be finalized before Prime Minister Sanae Takaichi meets U.S.

President Donald Trump.Trump had announced the meeting with Takaichi just before the Feb 8. Lower House election, which saw Takaichi lead the ruling LDP to a landslide victory.After her victory, Takaichi said last Monday that she would support economic growth by boosting investment through "proactive" fiscal policy, although she did not elaborate. She had earlier pledged to suspend food taxes for two years and boost defence spending to 2% of the country's budget.Before the election, Takaichi had announced a record 122 trillion yen budget for the fiscal year starting April 1, marking a second straight year of record spending and vowing to support households with cost-of-living pressures. Japan's inflation had slowed sharply to 2.1% in January, its lowest level since March 2022. Still, prices have remained above the Bank of Japan's 2% target for 45 consecutive months.This is breaking news, please check back for updates.Got a confidential news tip? We want to hear from you.Sign up for free newsletters and get more CNBC delivered to your inboxGet this delivered to your inbox, and more info about our products and services.© 2026 Versant Media, LLC.

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