A pedestrian stands in front of an electronic market board displaying Nikkei average stock price figures at the Tokyo Stock Exchange on February 3, 2026 in Tokyo.
Kazuhiro Nogi | AFP | Getty Images
Japan’s economy grew by 0.1% in the fourth quarter of 2025 compared to the previous three months, narrowly avoiding a technical recession.
Although this was a reversal from the 0.7% contraction seen in the third quarter, gross domestic product fell short of the 0.4% expansion expected by economists polled by Reuters.
A technical recession is generally defined as two consecutive quarters of recession.
On an annualized basis, production increased by 0.2% compared to the expected 1.6%, following a 2.3% decline in the previous quarter.
GDP grew by 0.1% in the fourth quarter compared to the same period last year, slowing from the 0.6% increase in the third quarter. Japan’s Cabinet Office data showed private consumption led the modest expansion, offsetting weaker exports and public spending.
After data release, Nikkei Stock Average 0.12% opened, circle Against the dollar, it fell 0.25% to $153.06.
In January, the Bank of Japan raised its economic growth forecast for the fiscal year ending March 2026 from 0.7% to 0.9%. The outlook for fiscal 2026 has also been raised from 0.7% to 1%.
The central bank said the economy is expected to expand moderately as other countries return to growth. The Bank of Japan also said there was 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 its second-largest trading partner toward a $550 billion investment commitment under a trade agreement with the United States.
Public broadcaster NHK reported last Friday that Tokyo and Washington have not yet agreed on the first project related to the pledge.
Japan’s Economy Minister Yoshinari Akazawa was quoted as saying that he hopes the initial project will be completed before Prime Minister Sanae Takaichi meets with US President Donald Trump.
Trump announced he would meet with Takaichi just before the February 8th House of Representatives election, and Takaichi led the ruling Liberal Democratic Party to a landslide victory.
After his victory, Takaichi said last Monday that he would support economic growth by boosting investment through “aggressive” fiscal policy, but gave no details.
He had previously promised to suspend food taxes for two years and increase defense spending to 2% of gross domestic product.
Bruce Kirk, chief Japanese equity strategist and managing director at Goldman Sachs, said defense will be the next big catalyst for a rally in Japanese stocks.
Speaking on CNBC’s “Squawk Box Asia,” Kirk spoke about the upcoming meeting between Takaichi and Trump, saying he expected “a flurry of announcements” involving Japanese and American companies in areas such as industrialization, factory automation and shipbuilding.
Kirk also highlighted a document released by the Trump administration over the weekend that called for restoring U.S. maritime dominance and touted cooperation with Japan and South Korea to revitalize the shipbuilding industry.
Before the election, Mr. Takaichi announced a record 122 trillion yen budget for the fiscal year starting April 1, marking the second consecutive year of record spending and vowing to support households strained by living expenses.
Japan’s inflation rate sharply slowed to 2.1% in January, the lowest level since March 2022. Still, prices have remained above the Bank of Japan’s 2% target for 45 consecutive months.
—CNBC’s Martin Soong contributed to this report.
