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	<title>Japan's Economy: Monthly Outlook | The Daiwa Institute of Research</title>
		<link>https://www.dir.co.jp/english/research/report/jmonthly/index.html</link>
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			<title>Japan's Economy: Monthly Outlook (Sep 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260925_026085.html</link>
			<pubDate>Fri, 25 Sep 2026 13:50:00 +0900</pubDate>
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    ◆The current economic expansion, with May 2020 identified as its business cycle trough, reached 74 months in July 2026, making it highly likely that it exceeded the 73-month “Izanami expansion” of the 2000s and became the longest postwar expansion on record. However, after excluding the impact of the COVID-19 pandemic, real GDP grew at an average annual rate of only 0.8% between the fourth quarter of 2019 and the second quarter of 2026. Real GDP increased by just 5.6% over the period, well below the gains recorded during previous prolonged expansion periods.

◆On the demand side, real income growth remained sluggish as wage increases failed to keep pace with high inflation, and private consumption was notably weaker than in other major economies. On the supply side, the manufacturing sector experienced sluggish growth in output, productivity, and employment amid the offshoring of production facilities and intensifying competition from other Asian countries. Productivity growth in the non-manufacturing sector, which absorbed much of the labor force, was also weak, and labor mobility toward high-productivity industries remained insufficient. As a result, despite the high likelihood that the current economic expansion has become the longest in the postwar period, the benefits of the expansion have not been substantially felt by households and firms.

◆Achieving “an economic expansion that is broadly felt by households and firms” will require raising Japan’s underlying growth trend, making it essential to strengthen growth potential through greater investment in areas such as AI. To revitalize consumption, steady real wage increase will be needed, along with measures to facilitate inflation-adjusted asset accumulation and enhance income redistribution toward low- and middle-income households. In addition, the analysis suggests widening disparities in educational expenditure across households, warranting close attention to their implications for human capital formation and medium- to long-term growth potential.

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			<title>Japan's Economy: Monthly Outlook (Aug 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260904_026041.html</link>
			<pubDate>Fri, 04 Sep 2026 12:10:00 +0900</pubDate>
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    ◆In light of the announcement of the Apr-Jun 2026 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP according to our main scenario at +0.7% in FY2026, and +0.9% in FY2027 (+0.7% in CY2026 and +0.7% in CY2027). 

◆For the time being, downward pressure is expected from factors such as price pass-through of surging crude oil import prices driven by turmoil in the Middle East, and domestic prices of goods and services. On the other hand, real wages are likely to continue rising, supported by sustained high wage increases and tax cuts on food and beverage consumption. Against the backdrop of strong corporate earnings, we expect to see expanding investment in labor-saving technologies, AI-related initiatives, and research and development. 

◆The core CPI is projected to rise by +2.1% y/y in FY2026 and +1.2% in FY2027. The sharp slowdown in FY2027 is attributed to the consumption tax cut on food and beverages (which is expected to directly lower the rate by approximately 1.2%pt); excluding the consumption tax cut and other policy factors, the rate is expected to remain in the +2% range. We anticipate that the Bank of Japan will raise short-term interest rates to 1.25% in October 2026, and then raise them by 0.25%pt approximately once every three months, reaching 1.75% in the Apr-Jun period of 2027 (after which rates are expected to remain unchanged). Long-term interest rates are expected to continue rising gradually, reaching approximately 3.1% at the end of FY2027.

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			<title>Japan’s Economy: Monthly Outlook (June 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260626_025866.html</link>
			<pubDate>Fri, 26 Jun 2026 15:45:00 +0900</pubDate>
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    ◆The U.S.-Iran Memorandum of Understanding has reduced downside risks to both the Japanese and global economies. However, the path toward a final agreement remains uncertain, and continued attention should be paid to the impact of crude oil prices on economic activity. Due in part to expanded alternative procurement, Japan’s crude oil import prices have remained clearly above WTI levels. If current conditions persist, import prices are projected to rise by more than 30% y/y in Q1 2027. Although the pace of increase is expected to moderate thereafter, the impact on consumer prices is likely to remain a factor in FY2027. In the period ahead, further expanding terms-of-trade losses and worsening net exports – driven in part by a recovery in crude oil import volumes – may gradually intensify downward pressure on the Japanese economy.

◆While the situation in the Middle East continues to weigh on both Japan and the global economy, growing demand for artificial intelligence (AI) is supporting economic activity. “AI-related goods,” defined based on the World Trade Organization (WTO) definition, have continuously boosted domestic production since 2024. However, Japan’s capture of demand for such goods remains relatively low among the G7, suggesting weaker export competitiveness and delays in strengthening supply capacity through domestic investment. This is also the case for non-AI-related goods, indicating that enhancing international competitiveness through expanded domestic investment remains an ongoing issue.

◆According to the draft proposal by the chair of the National Council on Social Security’s working-level panel, released on June 17, 2026, “a finely tuned income-linked benefit” for low- and middle-income working households (an income-linked benefit) is slated for full-scale introduction around the autumn of 2029. As a “bridge” measure, the consumption tax rate on food will be reduced to 1% for two years starting in April 2027. In addition, a preliminary introduction of the income-linked benefit is planned for autumn 2027 within the equivalent scope of a 1% consumption tax rate. This early implementation is positively valued for facilitating a smoother transition from consumption tax cuts to a refundable tax credit system. Although household support is expected to temporarily shrink between April 2029 and the autumn of that year, the primary objective of the consumption tax cut is to address rising prices; therefore, if nominal wages grow faster than consumer prices during this period, the necessity of such measures would likely be limited.

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			<title>Japan’s Economy: Monthly Outlook (May 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260605_025806.html</link>
			<pubDate>Fri, 05 Jun 2026 10:30:00 +0900</pubDate>
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    ◆In light of the announcement of the Jan-Mar 2026 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP according to our main scenario at +0.6% in FY2026, and +0.8% in FY2027. (On a calendar year basis, we expect +0.6% in 2026 and +0.7% in 2027). In response to the situation in the Middle East, we have revised our growth forecast downward, particularly for FY2026, compared to our previous announcement on March 10.

◆According to our main scenario we assume that the situation in the Middle East will come to an end in a short period of time, and that a downward trend in the price of crude oil and recovery in supply will continue. However, things remain highly uncertain. If a shortage of crude oil and other supplies occurs in Asia, including Japan, and crude oil prices rise again from the fourth quarter of 2026 to the first quarter of 2027, it is estimated that Japan's real GDP growth rate for FY2026 will fall by 0.4%pt.

◆Due to rising inflationary pressures stemming from the situation in the Middle East, core CPI is projected to rise by +2.6% y/y in FY2026 and +2.2% in FY2027. We anticipate that the Bank of Japan will raise short-term interest rates to 1.00% as early as June 2026, and then raise them by 0.25%pt approximately once every six months thereafter.

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			<title>Japan’s Economy: Monthly Outlook (Apr 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260427_025732.html</link>
			<pubDate>Mon, 27 Apr 2026 15:20:00 +0900</pubDate>
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    ◆Amid heightened tensions in the Middle East, energy prices, including crude oil, remain elevated. The effects are expected to gradually spill over to a broad range of goods and services beyond energy. On average, prices of crude oil, natural gas, and coal have risen by more than 30% since before the outbreak of the conflict. We have estimated the impact on domestic consumer prices based on input-output tables and taking gasoline subsidies into account. Under a full pass-through scenario, the CPI would rise by about 0.73%, while under a partial pass-through scenario, in which energy-related items are fully passed through and other items by 50%, the increase would be around 0.26%.

◆Japan’s ratio of crude oil imports to real GDP stood at 51 petajoules (PJ) per tril yen at the time of the first oil crisis (FY1973) but had declined to 9 PJ per tril yen by FY2024. This indicates that Japan’s economic resilience to higher oil prices has improved substantially since the oil crisis. However, over the same period, Japan’s dependence on the Middle East for crude oil imports increased from 78% to 96%, leaving the economy more vulnerable to tensions in the region. In preparation for the risk of prolonged tensions in the Middle East, the government should promptly clarify the conditions and timeline for scaling back gasoline subsidies, while encouraging households and firms to further promote energy conservation to make effective use of oil reserves.

◆The March 2026 Tankan survey by the Bank of Japan (BOJ) indicates that firms have become increasingly cautious about the outlook for business conditions. At the same time, the rise in medium- to long-term inflation expectations and the persistence of an accommodative financial environment also warrant attention. Meanwhile, an examination of the background to CPI inflation, using indicators such as the output deflator for non-manufacturing industries, suggests that wage-driven inflationary pressures have intensified since around 2024 and are likely to persist through 2026. Against this backdrop, there remains a strong case for the BOJ to continue raising interest rates to adjust the degree of monetary accommodation. However, a disruption in crude oil supply would pose a significant downside risk to Japan’s economy. As such, the BOJ is expected to leave policy unchanged at the April Monetary Policy Meeting while closely monitoring developments in the Middle East. Should conditions improve, an additional rate hike could take place as early as June.

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			<title>Japan’s Economy: Monthly Outlook (Mar 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260327_025668.html</link>
			<pubDate>Fri, 27 Mar 2026 15:40:00 +0900</pubDate>
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    ◆According to the aggregated results of the first round of responses released by the Japanese Trade Union Confederation (RENGO) on March 23, 2026, the weighted average wage increase rate – including regular pay raises – was 5.26% (down 0.20%pt from the same period last year). It is highly likely that the aggregated results of the final round of responses, to be released around July, will also remain in the 5% range. Although the gap in wage increase rates between large corporations and small and medium-sized enterprises (SMEs) has narrowed, partly due to an improved environment for price pass-through, challenges remain regarding the widespread implementation of wage increases among SMEs. Caution is needed regarding the possibility that the business environment will deteriorate due to factors such as the escalating situation in the Middle East, potentially leading to a widespread sense of so-called “wage hike fatigue,” particularly among SMEs.

◆Although we estimate Japan’s real GDP growth rate for fiscal year 2026 to be +1.0%, there is a risk of a significant downward revision due to factors such as escalating tensions in the Middle East. If, for example, the price of crude oil (WTI) remains at 150 USD/bbl and supply shortages occur both domestically and internationally due to reduced imports of crude oil and LNG from countries surrounding the Strait of Hormuz, real GDP growth for fiscal year 2026 will turn negative, falling to -1.0%. Under this scenario, the materials industries – including non-ferrous metals, petroleum and coal products, and rubber and plastics – would be particularly hard hit.

◆The deterioration of Japan-China relations and the Trump administration’s high-tariff policy (Trump tariffs) continue to weigh on the economy. Regarding the former, the number of Chinese visitors to Japan has halved compared to before the deterioration of relations, and this downturn may last longer than the previous one (from fall 2012 onward). Although Japan’s rare earth imports from China remained stable as recently as January 2026, if the chill in Japan-China relations persists and rare earth imports from China are cut off, Japan’s real GDP could decline by approximately 1.3% (7 tril yen). On the other hand, if the situation in the Middle East stabilizes, the Trump administration’s focus could shift to trade policy, and it is conceivable that Trump tariffs could be strengthened. If the US average effective tariff rate were raised by 10%pt in the second half of 2026, the downward pressure on Japan’s real GDP in 2026 (2027) is estimated to be 0.20% (0.42%).

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			<title>Japan’s Economy: Monthly Outlook (Feb 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260306_025617.html</link>
			<pubDate>Fri, 06 Mar 2026 16:00:00 +0900</pubDate>
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    ◆In light of the announcement of the Oct-Dec 2025 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP according to our main scenario at +0.7% in FY2025, +0.8% in FY2026, and +0.9% in FY2027. (On a calendar year basis, we expect +0.6% in 2026 and +1.0% in 2027).

◆Real wages should remain positive on a y/y basis, due to factors such as the continuation of a high level of wage increases in the spring labor negotiations, and a decline in the inflation rate. Government economic measures, a continued accommodative financial environment, and a high level of household savings are expected to support or boost the Japanese economy. In addition, the facts that the inventory cycle is seen to be entering an “accumulation phase” and that the capital stock cycle suggests an increase in capital expenditure are also positive factors.

◆On the other hand, continued vigilance is needed regarding downside risks to external demand, particularly from the US and China. In the US, inflation could rise higher than anticipated, potentially prolonging a tightening monetary policy environment or leading to a renewed escalation of Trump tariffs. Japan-China relations remain significantly strained since the fall of 2025, raising concerns that the recovery in the number of Chinese visitors to Japan could lag behind expectations or that procurement difficulties for rare earths and other materials could arise.

◆We assume that the Bank of Japan (BOJ) will raise the short-term interest rate to 1.00% in the Apr-Jun period of 2026 while closely monitoring the economy, prices, and financial situation, followed by additional rate hikes at a pace of once every six months, 0.25%pt at a time. The short-term interest rate is expected to reach 1.75% by the end of the forecast period. Real interest rates are expected to remain negative throughout the forecast period, and monetary conditions are likely to remain accommodative for the time being.

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			<title>Japan's Economy: Monthly Outlook (Jan 2026)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260202_025565.html</link>
			<pubDate>Mon, 02 Feb 2026 16:15:00 +0900</pubDate>
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    ◆We have revised our medium-term outlook for the Japanese economy for the first time in a year. Real GDP growth is projected to average +0.8% annually in FY2026-2035. In the first half of the forecast period, under accommodative fiscal and monetary policies, growth is expected to be driven primarily by private consumption, exports, and capital expenditure, supported by factors such as improvements in household income and steady global economic performance. In the latter half, while accelerating population decline and rising long-term interest rates will weigh on economic growth, consumption growth driven by wage increases is expected to provide support. The CPI inflation rate is projected to be +2.1% annually. The Bank of Japan is expected to gradually raise short-term interest rates to 1.75% by FY2027. Long-term interest rates are projected to rise above 4% toward the end of the forecast period, due to factors including loosening of the supply-demand balance for government bonds. The yen is expected to strengthen against the dollar, reaching the 111 yen/dollar range in the latter half of the forecast period.

◆The primary balance (PB) for national and local governments is projected to remain around -2.5% to -1.7% of GDP throughout the forecast period. However, if measures such as consumption tax cuts and increased defense spending are implemented, the PB deficit could widen significantly beyond expectations. Furthermore, the impact of rising long-term interest rates will increase net interest payments. Consequently, the fiscal balance, which was -2.5% of GDP in FY2024, is projected to deteriorate to -6.0% of GDP in FY2035. While the ratio of outstanding public debt and borrowings to GDP will continue to decline until the early 2030s, it is expected to start rising thereafter due to the delayed increase in the nominal effective interest rate and the expansion of the PB deficit.

◆The Sanae Takaichi administration plans to set new fiscal targets in Basic Policy on Economic and Fiscal Management and Reform 2026. It may allow for a deficit in the average primary balance over multiple years or even abolish spending targets. If so, Japan would become the member of the major 20 countries with the weakest fiscal discipline, focusing solely on the debt-to-GDP ratio as its target. Managing the debt-to-GDP ratio, which is susceptible to economic conditions and interest rates, is difficult for the government. To prepare for scenarios where potential growth does not accelerate, while also ensuring the ability to smoothly expand fiscal spending during major disasters or economic crises, the government should continue to adhere to its primary balance surplus target. Furthermore, if the government were to abandon the primary balance surplus target, it would need to establish a mechanism, drawing on the practices of other major countries, to ensure the effectiveness of fiscal consolidation.

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			<title>Outlook for Japan’s Economy in 2026</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20260106_025503.html</link>
			<pubDate>Tue, 06 Jan 2026 12:00:00 +0900</pubDate>
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    ◆We expect real GDP growth in 2026 to be +0.8% y/y. While this represents a slowdown from 2025 (projected at +1.2%), it is influenced by the carryover effect (real GDP growth rate that can be achieved with zero q/q growth in each quarter) shrinking from +0.6%pt in 2025 to +0.0%pt in 2026. On an underlying basis, a moderate economic recovery similar to 2025 is anticipated, with increases expected in components including personal consumption and capital expenditure.

◆In 2026, factors such as “improved household income conditions due to wage increases,” “government economic measures,” “continued accommodative financial conditions,” and “a high level of household savings” are expected to underpin or boost the Japanese economy. On the other hand, there are numerous downside risks to the economy, including: “Trump tariffs,” “deteriorating Japan-China relations,” “escalating tensions in the Middle East and Ukraine (leading to soaring crude oil prices),” “a sharp depreciation of the yen,” and “rising domestic interest rates.” 

◆The fiscal management of the Sanae Takaichi administration, which advocates “responsible proactive fiscal policy,” is also noteworthy. In recent years, the ratio of net debt to GDP for national and local governments has been declining even with a primary balance (PB) deficit. This is largely due to nominal GDP growth exceeding the nominal effective interest rate against a backdrop of high inflation. While this situation is expected to persist for the time being, the interest rate-growth rate differential is likely to narrow or reverse, with interest rates eventually surpassing growth. Without achieving a primary balance surplus, it will be difficult to reduce the net debt-to-GDP ratio. While the Takaichi administration is supporting growth through “crisis management investments,” and other initiatives the outcomes depend on private sector actions and remain unpredictable. It is essential to continuously monitor the primary balance and sustain market confidence in government bonds, preparing for scenarios where potential growth fails to accelerate. 

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			<title>Japan’s Economy: Monthly Outlook (Nov 2025)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20251205_025456.html</link>
			<pubDate>Fri, 05 Dec 2025 17:00:00 +0900</pubDate>
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    ◆In light of the announcement of the Jul-Sep 2025 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP according to our main scenario at +0.9% in FY2025, and +0.7% in FY2026. (On a calendar year basis, we expect +1.3% in 2025 and +0.5% in 2026).

◆Real wages (real employee compensation per capita) are expected to remain positive on a y/y basis, though with fluctuations, due to factors such as the anticipated spring labor negotiations in 2026 yielding increases at the same high level as the previous year, and a decline in the inflation rate. Improvements in household income conditions, government economic measures, continued accommodative financial environment, and high household savings are expected to support or boost the Japanese economy. On the other hand, caution is needed regarding downside risks to overseas demand, particularly from the US and China.

◆Due to factors such as the cycle of wage increases and price pass-through, the underlying trend in the CPI growth rate is expected to remain around +2% through FY2026. Meanwhile, we assume that the Bank of Japan (BOJ) will raise the short-term interest rate to 0.75% in December 2025 while closely monitoring the economy, prices, and financial situation, followed by additional rate hikes at a pace of once every six months, 0.25%pt at a time. Short-term interest rates are expected to reach 1.25% by the end of the forecast period. Real interest rates are expected to remain negative throughout the forecast period, and monetary conditions are likely to remain accommodative for the time being.

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