TOKYO, 16 February 2026 – Japan’s economy recorded only marginal growth at the end of 2025, underscoring persistent fragility in domestic demand and strengthening Prime Minister Sanae Takaichi’s case for increased government spending to sustain recovery momentum.
According to official data, Japan’s economy expanded just 0.1% quarter-on-quarter in the fourth quarter of 2025, equivalent to an annualised growth rate of approximately 0.2%, significantly below market expectations. Weak consumer spending and subdued capital investment contributed to the sluggish expansion.
The modest rebound follows a contraction in the previous quarter, highlighting the uneven nature of Japan’s economic recovery amid rising inflation pressures and global trade uncertainties.
Weak Consumption and Investment Underscore Fragile Recovery
Private consumption, a key pillar of Japan’s economy, grew only marginally, reflecting the continued impact of higher food prices and inflation on household spending. Corporate capital expenditure also showed limited improvement, signalling cautious business sentiment despite improving economic conditions globally.
Export performance offered limited support, with global demand stabilising but not contributing significantly to overall growth.
The slow pace of expansion highlights structural challenges facing Japan’s economy, including an ageing population, persistent inflationary pressures, and external trade headwinds.
Takaichi Signals Additional Fiscal Support
Prime Minister Sanae Takaichi is preparing to increase targeted public spending to support economic stability and strengthen long-term growth. The government has already introduced major stimulus initiatives, including record national budgets and policy measures aimed at boosting investment, supporting households, and accelerating industrial development.
Japan’s fiscal strategy focuses on enhancing economic security, strengthening supply chains, and investing in strategic industries such as technology, infrastructure, and energy.
Takaichi’s proactive fiscal stance reflects a shift toward growth-oriented policy, aimed at overcoming decades of low economic expansion and strengthening Japan’s global competitiveness.
Fiscal Expansion Comes Amid Strong Political Mandate
Takaichi’s push for increased government spending follows her recent electoral victory, which strengthened her political mandate and provided greater flexibility to implement expansionary fiscal policies.
Her administration has proposed stimulus packages, tax reductions, and expanded public investment programmes to support economic growth and improve household income.
While financial markets have responded positively to political clarity and growth-focused policies, analysts remain cautious about fiscal sustainability given Japan’s already high national debt levels.
Long-Term Growth Outlook Remains Gradual
Despite short-term challenges, economists expect Japan’s economy to continue expanding gradually over the coming quarters, supported by improved corporate investment, government spending, and rising inflation.
The Bank of Japan has indicated cautious optimism regarding the country’s economic outlook as inflation stabilises and monetary policy gradually normalises.
Japan remains one of the world’s largest economies, but its growth trajectory has historically been slower than other major economies due to structural factors such as demographic decline and prolonged economic stagnation.
Investor Perspective: Fiscal Policy and Growth Stability in Focus
For investors across Asia, Japan’s slow but positive economic growth highlights both the resilience and structural challenges of the world’s third-largest economy.
Government spending and fiscal stimulus will remain key drivers of economic expansion, particularly as private consumption and investment recover gradually.
Japan’s economic trajectory also has broader implications for regional markets, including Malaysia, given strong trade ties, investment flows, and supply chain integration.
As policymakers balance fiscal stimulus with long-term debt sustainability, Japan’s economic recovery path will remain a critical factor shaping investor sentiment and financial markets across Asia.
