FY2026 Report: Challenges of a Full-Scale Shift to a Growth-Oriented Economy | Chapter 6Price Changes, Corporate Behavior, and Growth Capital

Japan’s economy has gradually recovered since reaching a trough in May 2020, but it has been exposed to downward pressures, including trade issues centered on U.S. tariff measures and supply shocks triggered by worsening conditions in the Middle East. This chapter analyzes corporate behavior from the perspective of strengthening the economy’s capacity to achieve sustainable growth even in the presence of external shocks.

When companies expand investment and enhance productivity and supply capacity, this directly raises the growth potential of Japan’s economy as a whole. Improved corporate profitability helps secure resources for wage increases, contributing to sustained wage growth and strengthening the economic mechanism through which wages and prices rise moderately.

Sluggish growth in manufacturing production may have spread to related non-manufacturing industries, exerting downward pressure on growth across Japan’s economy. Conversely, if manufacturing regains strength, it is expected to revitalize the overall economy through spillover effects on other industries.

Potential growth declined after the bubble’s collapse in the early 1990s, falling from the 1% range to the 0% range from the 2000s onward. In manufacturing, industrial production leveled off or followed a slight downward trend after peaking immediately before the 2008 global financial crisis, while production capacity gradually declined from the latter half of the 1990s onward. Chemical products, iron and steel, and transport equipment saw production shrinkage or expanded overseas production, whereas electronic components and devices remained solid but experienced slower export growth than other countries.

From around 2022, companies’ expected inflation rates one, three, and five years ahead all exceeded 2%, although their outlooks also varied. It is considered important for the public and private sectors to cooperate in building an environment and framework that enable active investment in growth areas, and to maintain conditions in which prices and wages rise moderately and mutually under stable domestic demand.