Japan’s Weak Q4 Growth Puts Early Economic Pressure on Takaichi Government

Post by : Saif

Japan’s economy returned to growth in the fourth quarter, but the recovery was much weaker than expected. The new figures show that the country is moving forward only slowly, and this creates an early and serious test for Prime Minister Sanae Takaichi and her new government.

Official data shows that Japan’s economy grew at an annualized rate of just 0.2% in the October to December quarter. Economists had expected growth closer to 1.6%. On a quarterly basis, the economy expanded only 0.1%. This comes after a sharp contraction in the previous quarter, so many experts were hoping for a stronger rebound.

The small gain suggests that the country’s recovery is fragile. It is not yet strong enough to give families and businesses full confidence. Rising living costs, especially food prices, are still putting pressure on households. When people spend less, businesses earn less, and overall growth slows down.

Consumer spending, which makes up more than half of Japan’s economic output, increased by only 0.1% in the quarter. That is weaker than earlier in the year. Many families are being more careful with their money because daily expenses have gone up. Wages have not fully kept pace with prices, so real buying power remains tight.

Business investment, also called capital spending, rose by 0.2%. That is also below expectations. Companies appear cautious about expanding factories or buying new equipment. When firms hold back on investment, it often means they are unsure about future demand and profits.

Exports gave only limited support. Overseas sales fell again, though not as sharply as before. Part of the earlier damage came from new U.S. tariffs on Japanese goods under President Donald Trump. While the first shock from these tariffs has faded somewhat, manufacturers are still adjusting to a more protective U.S. trade policy. Net exports — exports minus imports — added nothing to growth in the quarter.

These weak numbers arrive just after Takaichi’s election victory. She has promised to support growth through targeted government spending and possible tax relief, including a plan to suspend the consumption tax on food for a period of time. Supporters say this could help households manage rising costs and encourage more spending. Critics worry it could increase government debt in a country that already has one of the highest debt levels among developed nations.

Some private economists believe the slow data may push the government to act faster. They expect extra budget measures and earlier fiscal support instead of waiting until late in the year. That could include new stimulus programs and spending packages aimed at boosting demand.

At the same time, there is a policy tension with the Bank of Japan. The central bank has begun moving away from years of ultra-low interest rates. It has signaled that more rate increases may come as it tries to control inflation and deal with the effects of a weak yen. Higher interest rates can help reduce inflation, but they also make loans more expensive and can slow growth.

This creates a delicate balance. The government wants faster growth and stronger spending. The central bank wants price stability and financial discipline. If rates rise too quickly while growth is weak, the recovery could stall. If rates stay too low while inflation remains high, household pain could continue.

Market reactions to the GDP report were cautious. Stocks moved unevenly, and bond markets stayed watchful. Investors are trying to judge whether Japan can achieve steady growth this year or whether it will continue to struggle with low momentum and price pressure.

Another key issue is wages. Many analysts say true recovery will depend on steady real wage growth. If workers see their pay rise faster than prices, they will feel more comfortable spending. That would support consumption and help businesses grow. Without wage gains, recovery may remain slow and uneven.

The latest figures do not mean Japan is heading into crisis, but they do show that the road ahead is not easy. The economy is growing, but only just. For Takaichi’s government, this is an early reminder that election wins are easier than economic turnarounds.

The coming months will show whether government spending plans, tax relief ideas, and central bank policy can work together instead of pulling in different directions. Strong coordination will be necessary. Without it, Japan risks staying stuck in a pattern of weak growth and high cost pressure.

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