This provides detailed analysis of the economic growth and price outlook published by the Bank of Japan on July 31, 2025.
Current Economic Conditions and Outlook
The Japanese economy is recovering gradually, though some areas show weakness. While overseas economies are growing gradually overall, some areas show weakness due to trade policy impacts and other factors. Exports and industrial production continue moving within a flat range as their underlying trend, though there are some movements of front-loading and subsequent reactions associated with US tariff increases.
Corporate profits are improving, business sentiment remains at favorable levels, and capital investment is on a gradual upward trend. Private consumption continues to be resilient, supported by improvements in employment and income conditions, though consumer sentiment shows some weakness due to price increases. Housing investment shows weak movements, and public investment moves within a flat range.
Price Trend Analysis
The year-over-year rate of consumer prices (excluding fresh food) is expected to be in the upper 2% range in fiscal 2025, in the upper 1% range in fiscal 2026, and around 2% in fiscal 2027. Due to the impact of rice and other food price increases during this period, it is currently in the lower 3% range. Expected inflation rates are rising gradually.
The underlying rate of increase in consumer prices, while temporarily struggling due to growth base deceleration and other slowdowns, is expected to gradually rise thereafter as growth rates increase, labor shortages intensify, and medium to long-term expected inflation rates rise, and is expected to move at levels generally consistent with the "price stability target" in the latter half of the outlook period.
Risk Factors and Policy Direction
While there are various risk factors, uncertainty surrounding future developments in trade policies of various countries and their impacts on overseas economic and price developments remains high, and their effects on financial and foreign exchange markets and domestic and overseas economies and prices require close monitoring. Regarding risk balance, for economic outlook, downside risks are larger for fiscal 2025 and 2026, while for price outlook, risks are generally balanced.
The article analyzes that while the Japanese economy maintains a gradual recovery trajectory, careful response to uncertainties from overseas factors and price developments is necessary.