Japan’s Economy: Monthly Outlook (Nov 2025)

◆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.