Japan’s Economy Seen Testing Further Growth in 2026

Tokyo, Jan. 2 (Jiji Press)–After staying on a moderate recovery path in recent years, the Japanese economy is expected to test its further growth in 2026. The current phase of economic expansion began after the economy bottomed out in May 2020. If the current expansion lasts until July this year, it will surpass the Izanagi boom, which spanned 73 months from February 2002 to February 2008, the longest such period since the end of World War II. However, the Japanese economy faces uncertainties, including those stemming from higher U.S. tariffs under President Donald Trump and the Chinese government’s advisory for its citizens to refrain from visiting Japan. Moreover, private consumption, a pillar of domestic demand, has lost luster due to inflation, suggesting that people are not actually feeling the benefits of the economic recovery. In 2025, households were squeezed by rising prices, especially rice prices, which soared to record highs amid a suspected supply shortage since 2024. Rice prices temporarily dropped after the government released its stockpiled rice, but they rebounded as the distribution of newly harvested rice began. Inflation has engulfed not only rice but also a wide range of other goods, mainly food products. In 2025, Japan’s consumer price index jumped 4.7 pct year-on-year in January and continued to rise 3 pct or higher in the following months. Meanwhile, the 2025 “shunto” labor-management wage negotiations resulted in an average wage increase of 5.25 pct, above 5 pct for the second consecutive year, according to the Japanese Trade Union Confederation, or Rengo. In the upcoming 2026 shunto, many companies are expected to agree again to raise wages by 5 pct or more, against the backdrop of strong corporate earnings. While automakers and some other companies are under pressure from Trump’s tariffs, earnings have remained solid overall among Japanese companies. “Companies have not weakened their stance on raising wages,” said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute Inc. Price increases for food products are also likely to run their course by this spring, according to research firm Teikoku Databank Ltd. If inflation subsides, partly thanks to the government’s comprehensive economic policy package, adopted late last year, price-adjusted real wages are expected to grow steadily, shoring up private consumption. Still, Shinichiro Kobayashi of Mitsubishi UFJ Research and Consulting Co. noted, “Worries about high prices are unlikely to ease because slower inflation does not mean falling prices.” END [Copyright The Jiji Press, Ltd.]