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	<title>Reports | The Daiwa Institute of Research</title>
		<link>https://www.dir.co.jp/english/research/report/index.html</link>
		<language>en</language>

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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>A 10% Reduction in Crude Oil and LNG Imports from the Middle East Would Push the Japanese Economy into Negative Growth</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260326_025663.html</link>
			<pubDate>Thu, 26 Mar 2026 14:30:00 +0900</pubDate>
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    ◆A large share of crude oil and LNG (liquefied natural gas) transported through the Strait of Hormuz is exported to Asian economies. If a de facto closure of the Strait leads to a significant reduction in supplies of Middle Eastern crude oil and LNG, it would not only directly constrain domestic production in Japan but would also indirectly weigh on the economy through spillover effects on Japan’s exports stemming from production reductions in other Asian economies.

◆If WTI crude oil prices were to rise to 120USD/bbl, Japan’s real GDP growth rate in FY2026 is estimated to be reduced by around 0.5%pt. Furthermore, if WTI prices were to surge to 150USD/bbl and crude oil and LNG imports from countries surrounding the Strait of Hormuz were to decline by 10%—resulting in supply shortages across Japan and other Asian economies—the negative impact on Japan’s GDP growth would widen to approximately 2.0%pt. Under this scenario, the Japanese economy would likely fall into negative growth in FY2026.

◆In addition to Japan, China, South Korea, and Taiwan are also reported to hold a certain level of petroleum reserves. Therefore, the likelihood of a crude oil supply shortage is limited in the short term in these economies. While the Japanese government is expected to take supply-side measures, such as securing alternative sources of procurement, caution is warranted regarding household support measures that may inadvertently stimulate energy demand.

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			<title>Acceptance of Foreign Workers and Coexistence in an Era of Labor Shortages</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260313_025636.html</link>
			<pubDate>Fri, 13 Mar 2026 17:20:00 +0900</pubDate>
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    ◆Labor shortages have become a serious problem for corporations, and the degree of labor scarcity is expected to intensify further across many industries going forward. While measures to address the declining birthrate and to raise productivity through labor‑saving investment are necessary, the effects of birthrate policies take time to materialize, and firms may miss opportunities to expand profits under supply constraints, potentially leading to insufficient investment.

◆Against this backdrop, foreign workers are expected to play an important role in expanding labor supply. An increase in foreign workers would raise labor input and total factor productivity (TFP) and is estimated to boost Japan’s annual potential growth rate by 0.4 percentage points through FY2035.

◆At the same time, while the public's acceptance of foreigners tends to improve until the proportion of foreigners reaches a certain level, it may deteriorate if that share becomes excessively high. The analysis also suggests that language barriers reduce acceptance. It is therefore important to adjust the scale of acceptance in line with economic and local community conditions, and to improve Japanese-language proficiency. There is an urgent need to implement introductory programs open to all foreigners that cover Japanese language and everyday living rules, as well as to develop environments that make it easier to learn while working, such as weekend and evening classes and childcare support.

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			<title>What Does “the Death of SaaS” Mean?</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260310_025622.html</link>
			<pubDate>Tue, 10 Mar 2026 11:10:00 +0900</pubDate>
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    ◆In early February 2026, software stocks were sold off and the phrase “the death of SaaS” rapidly spread through the market. This reaction stemmed from Anthropic’s release of “Claude Cowork” and its department-specific and function-specific plugins. While similar discussions occurred at the end of 2024, the market's current response can be attributed to the fact that, following advances in AI agent implementation, what was previously an abstract future vision has now become clearer as a concrete idea.

◆However, the “death of SaaS” does not signify the disappearance of SaaS as a service delivery model. Replacing SaaS with in-house solutions like AI agents requires not only operational accuracy but also significant compliance burdens, including security governance and audit logs. The load of designing, implementing, and maintaining these solutions individually is substantial for each company. Therefore, leveraging SaaS with embedded AI remains a practical choice. It is anticipated that SaaS itself will coexist while becoming more sophisticated through AI integration.

◆Meanwhile, the SaaS business model is being forced to change. As the primary operator shifts from humans to AI, foundational aspects like external integration (APIs, etc.), permission management, and auditability may become key differentiators over UI/UX. Furthermore, traditional pricing structures based on user numbers are likely to be reevaluated. The competitive landscape will also vary. Areas requiring heavy regulatory compliance and exception handling may see relatively stable demand, while in general-purpose domains, the ability to create added value through AI will determine competitiveness, leading to intensified competition.

◆As the SaaS industry moves toward an “agent-driven” model, client companies will increasingly redesign their business processes, raising expectations for productivity gains. However, during the transition period, skill shortages and organizational capacity will become bottlenecks, requiring employers to adapt to changing roles and necessary skills. In Japan, amid tightening labor supply constraints, the key will be whether companies can systematically advance reskilling and job reassignments rather than letting employees go. These AI-driven changes to business models are not limited to the SaaS industry; it is appropriate to view them as leading examples for the broader redesign of white-collar work.

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			<title>Trustworthy AI Is the Goal in the Artificial Intelligence Basic Planx</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260309_025618.html</link>
			<pubDate>Mon, 09 Mar 2026 11:20:00 +0900</pubDate>
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    ◆In December 2025, the “Artificial Intelligence Basic Plan” (hereinafter referred to as the Basic Plan) was approved by the Cabinet. It strongly emphasized the policy of aiming to become “the world's most AI-friendly country for development and utilization,” while placing “trustworthy AI” as its core concept. Examining “trustworthy AI” through the lens of the OECD's AI Principles reveals a strong emphasis on human-centered values, fairness, robustness, and safety. Looking at the approaches of the United States and the EU, the items they prioritize and their methodologies differ from Japan’s. For Japan to continue leading the creation of international cooperation frameworks, there are many challenges, including the harmonization of evaluation criteria.

◆The Basic Plan cites “high-quality data” as a key strength for Japan in realizing “trustworthy AI,” citing healthcare, research, and industry as examples. However, progress in data infrastructure and utilization varies significantly across sectors. Healthcare and research, being highly public-oriented, benefit from government and research community leadership in establishing foundational frameworks, making data and usage environments relatively easier to develop. In contrast, while cross-sector and cross-industry collaboration is advancing in the industrial sector, inter-company collaboration across the sector remains slow. In addition, digital transformation (DX) has lagged among small and medium-sized enterprises (SMEs), making it difficult to say that “high-quality data” currently exists to a significant degree across the entire industry.

◆The Basic Plan also expresses concern about Japan’s lag in AI-related development and investment. The international upper echelons of general-purpose foundational models are led by the United States and China, with Japan's presence currently limited. Furthermore, considering the uneven international distribution of computational resources (GPU clusters) and the gap in private investment scale, it suggests Japan may not yet have sufficiently established the prerequisites for continuously developing and operating competitive AI models.

◆In light of the principle of “trustworthy AI,” the Basic Plan’s direction—developing AI foundation models suited to Japanese culture and customs, ensuring a certain level of autonomy, and building social implementation using high-quality data in areas requiring reliability—is desirable. However, resolving challenges such as data preparation outlined in the Basic Plan will take some time, and concerns remain regarding the concrete measures, execution capability, and speed required for its realization. The government has indicated its policy to compile a public-private investment roadmap by spring 2026, necessitating continued close monitoring of developments.

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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>
			<description><![CDATA[
    
    ◆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>Examining the Takaichi Administration’s Consumption Tax Cut and Growth Strategy</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260304_025614.html</link>
			<pubDate>Wed, 04 Mar 2026 14:50:00 +0900</pubDate>
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    ◆The Sanae Takaichi administration plans to accelerate discussions toward eliminating the consumption tax on food and beverages for two years. However, this consumption tax cut would result in an annual revenue loss of approximately 5 tril yen, while its GDP-boosting effect would be limited to around 0.3 tril yen. Given that household support measures—such as increases in the basic income tax deduction—have already been implemented, and that the inflation rate is expected to decelerate, there is little need for this policy.

◆Redirecting the fiscal resources required for a consumption tax cut toward “growth investment” and “crisis-management investment” would be more effective for the Japanese economy, which faces structural supply-side constraints. In doing so, rather than allocating resources evenly across the 17 priority areas identified by the administration, it will be important to apply a clear sense of prioritization—focusing investment on areas with particularly large growth effects, such as semiconductors and AI—based on policy objectives and expected economic impact.

◆In the realm of crisis-management investment as well, attempting to bring low-probability risks completely under control would be inefficient from a cost–benefit perspective. Instead, efforts should be concentrated on areas where the likelihood of risk materialization is relatively high and the potential impact is significant—such as disruptions to imports of rare earths and other critical materials from China.

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			<title>Social Implementation of AI and Accelerating Infrastructure Investment</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260203_025568.html</link>
			<pubDate>Tue, 03 Feb 2026 11:45:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆2025 marked the year AI took its first step toward collaborating with humans. Technologically, advancements in AI model sophistication and multimodal capabilities enabled the processing of more complex tasks and expanded the types of information AI could handle, broadening the range of tasks AI could perform. Furthermore, the emergence of lightweight yet high-performance AI models increased options for corporate adoption. Against this backdrop of improved AI model performance, proof-of-concept experiments focused on social implementation intensified even in practical domains like AI agents and physical AI.

◆From 2026 onward, the social implementation of these AI agents and physical AI are expected to advance further. While challenges remain in areas such as permission management, security, and institutional frameworks, implementation is likely to progress first in routine tasks with relatively minor impacts and in closed environments like factories. The year 2026 is anticipated to mark the turning point when the entire economy transitions toward an AI-based industrial structure.

◆Investment in AI infrastructure such as data centers by various AI companies has been increasing year by year. While some voices suggest this represents overinvestment, this trend is expected to continue into 2026. While technological efficiencies are improving, the performance gains of AI models are outpacing these efficiencies, leading to strained computational resources. Therefore, it is difficult to immediately label this as overinvestment. On the revenue side, however, corporate AI adoption is still in the trial phase, and monetization is likely to take time, necessitating close monitoring of developments.

◆Monetization depends not only on the performance of AI models but also on how widely and deeply they are adopted and established within companies. For the time being, it is crucial to carefully assess the expansion of implementation areas and usage track records, evaluating them from a long-term perspective rather than as short-term trends. The utilization of specialized AI models is also advancing, and their combined use with optimization tailored to specific applications is expected to grow. Beyond technological progress and infrastructure development, the key to AI market growth will likely be whether the level of adoption within companies translates into sustained demand.

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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>Cost-Effectiveness and Necessity of Zero Consumption Tax on Food &amp; Beverage Products and Uniform 5% Consumption Tax</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260128_025558.html</link>
			<pubDate>Wed, 28 Jan 2026 14:45:00 +0900</pubDate>
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    ◆Estimates of the impact on household budgets from the Liberal Democratic Party's proposal to eliminate consumption tax on food & beverage products versus some opposition parties calling for a uniform reduction to a 5% consumption tax rate show the former would reduce household expenses by 88,000 yen annually, while the latter would reduce them by 281,000 yen. The effect on stimulating personal consumption would be about 0.5 tril yen (with a GDP boost effect of 0.3 tril yen) for the former, and about 1.5–4.6 tril yen (with a GDP boost effect of 1.1–3.2 tril yen) for the latter. For either measure, a large portion of the fiscal expenditure would go to households with less need for support, and the economic effect is seen as small relative to the required funding of about 5–15 tril yen annually.

◆According to the government forecast approved by the Cabinet under the Sanae Takaichi administration, the consumer price index for fiscal year 2026 is projected to slow to a y/y increase of 1.9%. Considering the implementation of measures such as raising the basic deduction, there is no need to implement additional consumption tax cuts as countermeasures against rising prices. Even if the zero-consumption tax on food and beverages is implemented as a measure with a two-year time-limit going forward, it should end as scheduled without extension. The government should actively advance the design of a system for introducing a tax credit with benefits through the National Council.

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