This comprehensive report analyzes trends in Japan's economy and examines necessary policy considerations for the future, prepared by the Cabinet Office.
The report, subtitled "Overcoming Internal and External Risks to Realize Growth-Oriented Economy Led by Wage Increases," evaluates the unprecedented positive developments in Japan's economy, including the first-time achievement of nominal GDP exceeding 600 trillion yen and robust wage increase results in the 2025 spring labor negotiations that exceeded the previous year's outcomes, which were already at their highest level in 33 years.
Chapter 1 provides a detailed review of macroeconomic trends through mid-2025, utilizing various data sources. It specifically identifies differences between the current recovery phase and the two previous long-term recovery periods that were led by exports and manufacturing, analyzing the significant direct and indirect downside risks to Japan's economy posed by U.S. tariff increases.
Chapter 2 focuses on the household sector, discussing challenges for establishing sustained wage growth and achieving stronger recovery in personal consumption. Drawing on the Cabinet Office's original survey results, it provides detailed analysis of the underlying factors behind weak consumption recovery relative to wage and income growth.
Chapter 3 examines the changing global economy and challenges facing Japan's corporate sector. Using data, it confirms that corporate price and wage-setting behavior and economic actors' perceptions of inflation have transformed, with the virtuous cycle between wages and prices finally beginning to turn, while discussing risks and challenges for its establishment.
The article concludes that Japan's economy faces a critical test in determining whether it can overcome these adversities, break away from the cost-cutting economy, and ensure a definitive transition to a growth-oriented economy.