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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 (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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			<title>Japan’s Economy: Monthly Outlook (Oct 2025)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20251029_025385.html</link>
			<pubDate>Wed, 29 Oct 2025 16:05:00 +0900</pubDate>
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    ◆On October 21, 2025, Sanae Takaichi, President of the Liberal Democratic Party (LDP), was elected Prime Minister, forming a coalition government with the Japan Innovation Party (LDP-JIP coalition). Looking back at Japan's economy in the 2020s to consider the future direction of economic policy, Japan saw the strongest export growth among the Group of Seven (G7) nations, yet the weakest private consumption. This was driven by factors such as sluggish growth in real disposable income due to high prices and a strengthening tendency toward thrift. The high prices significantly impacted not only low-income households but also middle-income households. It is estimated almost 60% of the current inflation rate stems from supply shocks, primarily centered on food products.

◆Real wages and salaries per capita (as measured in GDP statistics) grew at an annual rate of +0.1% from 2014 to 2024, significantly lower than the rates in the US (+1.5%) and Germany (+0.9%). Labor productivity and working hours were particularly influential factors, with productivity-driven growth amounting to only about half that of the US. One contributing factor was Japan's significantly lower capital accumulation compared to the US, particularly in intangible fixed assets like software and research and development. The downward pressure from working hours was pronounced in Japan. While the effects of work-style reforms are commendable in this regard, a certain number of workers still desire more work. If all such desires were fulfilled, per capita working hours are estimated to increase by 3.6%.

◆The Takaichi LDP-JIP coalition government plans to include measures such as abolishing the provisional gasoline tax rate and providing subsidies for electricity and gas bills in its economic stimulus package to combat rising prices. However, measures against high energy prices are inefficient, benefiting high-income individuals and profitable companies. The government should verify the effectiveness and necessity of these policies and review them appropriately, considering Japan's transition to an inflationary economy. Furthermore, the Takaichi LDP-JIP coalition government intends to expedite the design of an Earned Income Tax Credit (EITC) with benefits system. Japan's redistribution function for low-income groups is weak, and it has repeatedly relied on “primitive low-income support measures” based on households exempt from resident tax. Strengthening and refining low-income support through the EITC is essential. Raising real wage growth rates and economic growth rates is seen as hinging on expanding capital expenditure, making the realization of a “virtuous cycle of wage increases and capital expenditure” crucial.

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			<title>Japan’s Economy: Monthly Outlook (Sep 2025)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20251006_025337.html</link>
			<pubDate>Mon, 06 Oct 2025 10:20:00 +0900</pubDate>
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    ◆An agreement was reached in the Japan-US tariff negotiations, but the resulting average US tariff rate on Japanese imports is estimated at 12.3%. While this is down from 14.5% in July, it remains high considering it was 1.5% at the start of the year. Caution is still needed regarding the impact of the Trump administration's high tariff policy (Trump tariffs) on exports to the US and other domestic and international economic activities, even after the Japan-US agreement.

◆Japan's real exports have remained resilient overall, but since July, motor vehicles and related goods have declined significantly due to the impact of Trump tariffs, reaching their lowest level since November 2024 in August. This is likely due to increased local production and reduced price competitiveness. However, the reduction in US tariffs on Japanese automobiles should mitigate the negative price impact going forward. That said, Japanese auto exports to the US are more susceptible to domestic US demand than relative pricing. The US is experiencing worsening employment conditions and accelerating inflation, which could negatively impact exports from Japan.

◆Japan's nominal exports to the US fell -13.8% y/y in August 2025. Assuming a similar rate of decline (-15%) going forward, calculations using input-output tables estimate the largest impact on manufacturing gross value added (GDP) would be in transportation equipment (-2.5%). General-purpose machinery would see the next largest impact (-1.5%). These sectors employ relatively large numbers of workers within manufacturing, raising concerns that the adverse effects could extend to the employment environment. Meanwhile, while we project real capital expenditure in 2026 to increase by +1.0% y/y, this would decline to +0.6% in the case of a -15% drop in exports to the US. In the worst-case scenario of a -40% decline in exports to the US, real capital expenditure would turn negative for the first time in six years, falling by -0.1%.

◆Our outlook for the rate of increase in wages in the spring labor negotiations, consistent with our economic outlook, is estimated at around 5.3% for 2026 and around 4.2% for 2027 (based on RENGO aggregate figures). If exports to the US decline by -40% and the wage-price cycle weakens, the 2027 wage increase rate could potentially drop to around 2.8%. This would be comparable to 1997 levels, when the Japanese economy was on the brink of falling into deflation. Should the impact of Trump tariffs become severe, it suggests that the Japanese economy, having transitioned to an inflationary phase, faces a heightened risk of reverting to deflation.

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			<title>Japan’s Economy: Monthly Outlook (Aug 2025)</title>
			<link>https://www.dir.co.jp/english/research/report/jmonthly/20250905_025291.html</link>
			<pubDate>Fri, 05 Sep 2025 09:10:00 +0900</pubDate>
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    ◆In light of the announcement of the Apr-Jun 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, and +0.8% in FY2026. (On a calendar year basis, we expect +1.1% in 2025 and +0.7% in 2026). 

◆Although the level of uncertainty is great due to the US Trump administration’s high tariff policy (Trump tariffs), we expect real wages (real employee compensation per capita) to remain on the positive side on a y/y basis, due to the continuation of wage hikes at a high level as a result of the spring labor negotiations, and a decline in the rate of growth in prices. Due to wage hikes, the price pass-through cycle and other factors, we expect the growth rate trend in CPI to be around 2%. Japan’s economy can expect to find underlying support and growth factors including improvement in the household income environment, economic stimulus measures by the government, growth in inbound demand, the high level of household savings, and other factors. It is necessary to be cautious regarding the impact of the Trump tariffs on domestic and overseas economic activity, as well as rising crude oil prices due to tensions in the Middle East. 

◆We assume that the Bank of Japan (BOJ) will raise the short-term interest rate to 0.75% in the Oct-Dec 2025 period 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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