Japan’s Economic Outlook for Fiscal Years 2025-2027 (November 2025)

■Summary

＜Real GDP Growth Rate: Forecast at 1.0% for FY 2025, 1.0% for FY 2026, and 1.3% for FY 2027＞

Real GDP in the July–September quarter of 2025 recorded negative growth for the first time in six quarters, declining by 0.4% from the previous quarter (on an annualized basis: –1.8%), mainly due to decreases in exports and private residential investment.
Although exports are expected to continue decreasing in the October–December quarter, increases in private consumption, private residential investment, and capital investment will likely lead to slight positive growth in real GDP, at 0.3% on an annualized basis. However, downside risks remain significant, particularly for exports.
The real GDP growth rate is forecast at 1.0% in FY 2025, 1.0% in FY 2026, and 1.3% in FY 2027. After entering 2026, the impact of tariff increases is expected to gradually diminish, and domestic demand—mainly driven by private consumption and capital investment—will likely increase as exports recover. Growth is expected to continue in the 1% range, exceeding the potential growth rate.
The consumer price inflation rate (consumer prices excluding fresh food) is forecast at 2.7% in FY 2025, 1.8% in FY 2026, and 2.1% in FY 2027. After entering 2026, the combined effects of the abolition of the provisional gasoline tax rate and support measures for electricity and city gas will temporarily push the rate below 2%. However, in 2027, it is expected to return to the 2% range, mainly due to an accelerated increase in service prices, driven by continued substantial wage growth.

■Index

1．Negative growth of –1.8% on an annualized basis from the previous quarter in the July–September quarter of 2025
・Prime Minister Takaichi’s commitment to “responsible proactive fiscal policy”
・Impact of the Trump tariffs becomes evident
・Despite the slowing wage increase rate in the 2026 spring wage negotiations, it remains in the 5% range

2．The real growth rate is forecast at 1.0% in FY 2025, 1.0% in FY 2026, and 1.3% in FY 2027
・Growth continues to be driven by domestic demand
・Property income pushes up households’ disposable income
・Corporate investment behavior might become more cautious
・Price outlook

Taro Saito