Overview
The Japan Center for Economic Research has released revised economic forecasts for fiscal years 2025-26, projecting continued positive growth albeit at a decelerating pace, with particular attention on the crucial 2025 spring wage negotiations.
The real GDP growth forecast for FY2025 has been revised down to 0.4% (from 0.8% in the March forecast), while FY2026 is projected at 0.9% (down from 1.0%). The downward revision for FY2025 primarily reflects the impact of the Bank of Japan's interest rate hikes and a slowdown in overseas economies, particularly the United States. However, positive growth is expected to continue, supported by recovering real wages and improved consumer sentiment.
Private consumption is forecast to grow 0.6% in FY2025 and 1.2% in FY2026. Following substantial wage increases in the 2024 spring negotiations, continued wage growth is expected in 2025, though at a more moderate pace. As inflation stabilizes, real wage growth is anticipated to turn positive, supporting consumption recovery. However, the pace of recovery may be gradual due to persistent household caution.
Consumer prices (excluding fresh food) are projected to rise 2.3% in FY2025 and 1.8% in FY2026. While service prices continue to increase reflecting higher labor costs, the overall inflation rate is expected to moderate as the effects of past commodity price spikes fade. The Bank of Japan is likely to maintain its 2% inflation target while gradually normalizing monetary policy.
The 2025 spring wage negotiations are highlighted as a critical factor for sustaining economic recovery. The report emphasizes that maintaining the momentum of wage increases is essential for establishing a virtuous cycle between wages and prices. Companies are expected to continue raising wages to secure human resources amid labor shortages, but the pace may moderate compared to 2024.
Key risks include uncertainty in overseas economies, particularly regarding U.S. monetary policy and China's economic outlook, geopolitical tensions affecting energy and food prices, and domestic factors such as the sustainability of wage increases and the pace of Bank of Japan policy normalization. The report stresses the importance of policy coordination to support the transition to sustainable growth driven by domestic demand.
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The Japan Center for Economic Research has released revised economic forecasts for fiscal years 2025-26, projecting continued positive growth albeit at a decelerating pace, with particular attention on the crucial 2025 spring wage negotiations.
The real GDP growth forecast for FY2025 has been revised down to 0.4% (from 0.8% in the March forecast), while FY2026 is projected at 0.9% (down from 1.0%). The downward revision for FY2025 primarily reflects the impact of the Bank of Japan's interest rate hikes and a slowdown in overseas economies, particularly the United States. However, positive growth is expected to continue, supported by recovering real wages and improved consumer sentiment.
Private consumption is forecast to grow 0.6% in FY2025 and 1.2% in FY2026. Following substantial wage increases in the 2024 spring negotiations, continued wage growth is expected in 2025, though at a more moderate pace. As inflation stabilizes, real wage growth is anticipated to turn positive, supporting consumption recovery. However, the pace of recovery may be gradual due to persistent household caution.
Consumer prices (excluding fresh food) are projected to rise 2.3% in FY2025 and 1.8% in FY2026. While service prices continue to increase reflecting higher labor costs, the overall inflation rate is expected to moderate as the effects of past commodity price spikes fade. The Bank of Japan is likely to maintain its 2% inflation target while gradually normalizing monetary policy.
The 2025 spring wage negotiations are highlighted as a critical factor for sustaining economic recovery. The report emphasizes that maintaining the momentum of wage increases is essential for establishing a virtuous cycle between wages and prices. Companies are expected to continue raising wages to secure human resources amid labor shortages, but the pace may moderate compared to 2024.
Key risks include uncertainty in overseas economies, particularly regarding U.S. monetary policy and China's economic outlook, geopolitical tensions affecting energy and food prices, and domestic factors such as the sustainability of wage increases and the pace of Bank of Japan policy normalization. The report stresses the importance of policy coordination to support the transition to sustainable growth driven by domestic demand.