Japan’s Economy Navigates Sluggish Growth as Takaichi Prepares New Policies

Japan’s economy demonstrated modest growth in the fourth quarter of 2025, narrowly avoiding a technical recession but falling short of market expectations. This outcome presents a significant challenge for Prime Minister Sanae Takaichi’s newly elected government as it seeks to revitalize the world’s fourth-largest economy.

Anemic Growth and Export Challenges

The Japanese economy expanded at an annualized rate of 0.2% in the October-December quarter, according to government data released on Monday, February 16, 2026 . This figure represents a rebound from the 0.7% contraction experienced in the July-September period, but it significantly underperforms the median market forecast of 1.6% growth . On a quarterly basis, growth was 0.1%.

A key factor contributing to the sluggish performance was a 1.1% decline in exports . This downturn is partially attributed to the impact of tariffs imposed by President Donald Trump . Private consumption saw a 0.4% annualized increase, but this was insufficient to offset the drop in exports.

Takaichi’s Policy Response

Prime Minister Takaichi, who secured a landslide victory in a general election earlier this month, is preparing to implement policies aimed at stimulating economic growth . Her proposed measures include increased government spending and the suspension of Japan’s sales tax on food . The administration is focusing on targeted public spending in sectors deemed vital to economic security .

Broader Economic Context

Despite the recent challenges, Japan’s economic expansion of 1.1% for all of 2025 marked the fastest pace since 2022, when the country was recovering from the COVID-19 pandemic . However, economists project that the economy will continue to expand at a modest average rate of around 0.6% in the near term .

The Bank of Japan has signaled its intention to continue raising interest rates and normalizing monetary policy after years of ultra-low borrowing costs .

Key Takeaways

• Japan’s economy grew by 0.2% in Q4 2025, missing market expectations.
• A decline in exports, influenced by international tariffs, contributed to the slow growth.
• Prime Minister Takaichi is planning increased government spending and tax adjustments to stimulate the economy.
• The Bank of Japan intends to continue normalizing monetary policy.