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2026-02-16 08:38:41
[Japan's Economic Recovery Creates Conditions for Further Interest Rate Hikes by the Bank of Japan] Despite external pressure from US tariffs, Japan's economy returned to growth in the fourth quarter of 2025, providing the Bank of Japan with policy space for further interest rate hikes. Preliminary data released by the Cabinet Office on Monday showed that Japan's real GDP grew by 0.1% quarter-on-quarter in the October-December 2025 period. This followed a 0.7% quarter-on-quarter contraction in the previous quarter. The figure was lower than the 0.4% growth expected by economists surveyed by Quick. On an annualized basis, the economy grew by 0.2% in the quarter. The data shows that the Japanese economy withstood the impact of US tariffs better than expected. Although exports declined by 0.3% quarter-on-quarter, this was a significant narrowing from the 1.4% decline in the previous quarter. On the domestic demand side, capital expenditure increased slightly by 0.2% quarter-on-quarter, and personal consumption increased by 0.1% quarter-on-quarter. Analysts believe that this positive economic data is likely to strengthen the Bank of Japan's confidence in the domestic economic recovery. Even with continued uncertainties in the global environment, it also opens the door for the central bank to continue normalizing monetary policy. However, the Bank of Japan's future policy path will still require a delicate balance with fiscal policy. In the election held earlier this month, Prime Minister Sanae Takaichi led her party to a landslide victory. While economic growth data supports her growth-oriented stimulus policies, Takaichi's strong mandate to push forward expansionary fiscal measures (including establishing a food tax exemption period) may complicate the central bank's efforts to control inflation.
