Japan’s Economic Outlook for Fiscal Years 2025-2027 (November 2025)　|ニッセイ基礎研究所

1．Negative growth of –1.8% on an annualized basis from the previous quarter in the July–September quarter of 2025

Real gross domestic product (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 (–1.8% on an annualized basis from the previous quarter).

Although private consumption and capital investment increased, declines in exports and private residential investment were the main factors behind the negative growth. External demand and private residential investment alone pushed down the growth rate in the July–September quarter by around 2% on an annualized basis.

Private consumption (up 0.1% from the previous quarter) and capital investment (up 1.0% from the previous quarter) increased, although domestic demand decreased for the first time in three quarters because private residential investment sharply fell by 9.4% from the previous quarter as a recoil from last-minute demand before the amendments to the Energy Conservation Act for Buildings and the Building Standards Act. The decline in private residential investment was the largest since the April–June quarter of 2009 (down 9.8% from the previous quarter) following the global financial crisis.

The contribution of external demand to growth was negative for the first time in two quarters, at –0.2% from the previous quarter (–1.0% on an annualized basis from the previous quarter). Exports of goods and services declined by 1.2% from the previous quarter, while imports of goods and services fell by 0.1% from the previous quarter. Exports increased in the April–June quarter even under the Trump tariffs, but declined in the July–September quarter, mainly for shipments to the US.

Prime Minister Takaichi’s commitment to “responsible proactive fiscal policy”
Since taking office on October 21, Prime Minister Sanae Takaichi has put forward a policy of “responsible proactive fiscal policy” to build a “strong economy,” stating that she aims to increase tax revenues without raising tax rates by boosting income and corporate earnings through strategic fiscal spending. She has identified measures to address high inflation as the highest priority, deciding to abolish the provisional gasoline tax rate at the end of December 2025 and implement support measures for electricity and gas bills during the winter.

Prime Minister Takaichi has launched the Japan Growth Strategy Council to promote strong growth in the Japanese economy, positioning “crisis management investment” as the core of the growth strategy to address various risks and social issues, such as economic security, food security, energy security, healthcare security, and measures to build national resilience. She has identified 17 “strategic sectors,” including AI and semiconductors, digital and cyber security, resource and energy security, green transformation, and disaster prevention and national resilience, as well as eight “cross-sectoral issues,” such as establishing a nation based on new technologies and strengthening competitiveness, human resource development, and labor market reform.

While the overall growth strategy is scheduled to be formulated by next summer, the economic package to be compiled in late November will include priority measures to be implemented immediately.

Impact of the Trump tariffs becomes evident
After the tariff increases in April 2025, exports to the US were broadly flat in volume terms, but the pace of decline has now become clearer. The decline has been particularly pronounced in automobile exports, which sharply fell by 14.2% in September 2025 compared to the previous year in volume terms. Export prices of automobiles to the US (on a contract-currency basis) had been declining by around 20% compared to the previous year since May 2025, although the rate of decline had narrowed to 13.6% by October compared to the previous year, and prices were raised by around 7% from the previous month. Major Japanese automakers have already raised their US sales prices, but the increase in export prices is also expected to further erode the price competitiveness of Japanese cars relative to US cars.

Trends in automobile exports to the United States/Changes in export prices of automobiles to the United States

Although the automobile tariff was lowered from 27.5% to 15.0% on September 16, it still represents a substantial increase compared to the original rate of 2.5%. Exports of automobiles to the US are highly likely to continue declining in volume, mainly due to a loss of price competitiveness.

While the automobile tariff has been reduced, reciprocal tariffs were raised from 10% to 15% on August 7, and tariffs on steel, aluminum, and copper remain at 50%. Downward pressure on US exports from tariff increases is highly likely to persist for some time.

Japanese exports declined in the July–September quarter of 2025, mainly to the US, as the impact of the tariff increases became evident, and this decreasing trend is expected to continue in the October–December quarter. In this outlook, it is assumed that no further tariff increases will be implemented, except for some items such as semiconductors and pharmaceuticals, and that the decline in exports due to the tariff hikes will be contained toward the end of FY 2025. However, due to the slowdown in overseas economies—particularly in the US and China—and the contraction in global trade, strong downward pressure on Japanese exports is likely to persist for the time being.

In addition, in this outlook, against the backdrop of interest rate cuts in the US and interest rate hikes by the Bank of Japan, it is assumed that the yen will appreciate and the US dollar will weaken to the lower ¥140 range per dollar by the end of FY 2027, which will also be a factor in depressing exports. Exports of goods and services in the GDP statistics are expected to continue to grow at a relatively modest pace, rising by 2.1% compared to the previous year in FY 2025, 0.9% in FY 2026, and 2.0% in FY 2027.

Despite the slowing wage increase rate in the 2026 spring wage negotiations, it remains in the 5% range
The wage increase rate in the 2025 spring wage negotiations was 5.52% (according to the Ministry of Health, Labor and Welfare’s “Status of wage increase requests and settlements in major private enterprises in the spring wage negotiations”), exceeding the high level of 5.33% in 2024—the highest in 33 years—by 0.19 percentage points.

Regarding the environment surrounding the 2026 spring wage negotiations, although the effective job openings-to-applicants ratio has been on a downward trend, it remains above 1.0, and labor market conditions remain tight, with the unemployment rate continuing in the mid-2% range. The consumer price inflation rate remains elevated at around 3%. On the other hand, although corporate profits have somewhat slowed due to the impact of the Trump tariffs, ordinary profits (seasonally adjusted) and the ordinary profit-to-sales ratio in the Financial Statements Statistics of Corporations by Industry remain at high levels.

Changes in the environment surrounding wage increases

To compare the wage-setting environment with the past, if we standardize by the standard deviation the deviations from the historical average (since 1985) for labor market conditions (effective job openings-to-applicants ratio), corporate profits (ordinary profit-to-sales ratio), and prices (consumer price inflation rate (excluding fresh food)), the combined value of the three indicators is at the highest level on record. The environment for wage increases remains favorable.

In the basic policy for the 2026 spring wage negotiations announced on October 23, the Japanese Trade Union Confederation (RENGO) stated that, following 2025, it would again demand wage increases of 5% or more (including the portion equivalent to regular pay hikes). Furthermore, small and medium-sized enterprise labor unions would actively demand an additional portion for correcting wage differentials. The wage increase rate in the 2026 spring wage negotiations is expected to somewhat slow from the previous year to 5.20%, due to the impact of slower corporate profit growth caused by the Trump tariffs, while remaining at a high level in the 5% range for the third consecutive year (for FY 2027, it is assumed to rise to 5.40% as corporate profits recover).

Despite the high wage increase rate in the spring wage negotiations, nominal wages in the actual labor market have been sluggish. Total cash earnings (per employee) rose into the 3% range compared to the previous year after the start of FY 2024, mainly due to a substantial increase in bonuses. However, growth has been sluggish in the low 2% range since the January–March quarter of 2025.

One factor behind this is that the wage increase rate in the spring wage negotiations—which target unionized workers—no longer fully reflects wage developments in the overall labor market, amid declining unionization rates and other factors. In fact, according to the Ministry of Health, Labor and Welfare’s “Survey on wage increases, etc.,” at times when wage increase rates were low, the wage increase rates for “with labor union” and “without labor union” were almost the same. However, since 2023, when wage increases began in earnest, a divergence has emerged between the two, and the average wage revision rates in 2024 and 2025 were 4.5% and 4.8% for “with labor union,” compared with 3.6% and 4.0% for “without labor union,” respectively, with the difference widening to nearly 1%.

Real wages—calculated by deflating nominal wages with consumer prices (realized using consumer prices (overall excluding imputed rent for owner-occupied housing))—recorded positive growth compared to the previous year in some months during 2024, mainly due to a substantial increase in special cash earnings, but have been negative since the beginning of 2025. “Regular pay (scheduled cash earnings plus non-scheduled cash earnings),” which shows a more stable pattern than total cash earnings, has remained in negative territory since February 2022.

Since nominal wages are highly likely to continue moving in the low 2% range for the time being, it is a necessary condition that the increase in consumer prices (overall) slows to below 2% for the real wage growth rate to turn positive. At present, the consumer price inflation rate is expected to fall below 2% around the beginning of 2026. The real wage growth rate is likely to turn positive in a sustained and stable manner from the January–March quarter of 2026 onward.

日付	タイトル	執筆者	媒体
2026/01/16	ＧＤＰ統計の基準改定で何が変わったのか－日本経済の姿を再点検する	斎藤太郎	Weekly　エコノミスト・レター
2025/12/26	鉱工業生産25年11月－10-12月期は小幅ながら3四半期連続増産へ	斎藤太郎	経済・金融フラッシュ
2025/12/26	雇用関連統計25年11月－正規雇用を中心に女性の就業拡大が続く	斎藤太郎	経済・金融フラッシュ
2025/12/19	消費者物価（全国25年11月）－コアCPI上昇率は26年2月に2％割れへ	斎藤太郎	経済・金融フラッシュ

Japan’s Economic Outlook for Fiscal Years 2025-2027 (November 2025) | ニッセイ基礎研究所