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

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
Among exports and private residential investment—which were the main factors behind the negative growth in the July–September quarter of 2025—exports are expected to continue decreasing in the October–December quarter due to the lingering impact of the US tariff increases. On the other hand, housing starts—a leading indicator for private residential investment—have been recovering since bottoming out in May 2025. In the GDP statistics, private residential investment is recorded on a construction progress basis, and the movements in housing starts are reflected with a lag, so private residential investment is expected to return to growth in the October–December quarter.

In the October–December quarter, although exports are expected to continue decreasing, real GDP is forecast to record a slight positive growth of 0.3% on an annualized basis from the previous quarter, as private consumption, private residential investment, and capital investment increase. However, downside risks remain high, particularly for exports.

After entering 2026, as the impact of the tariff increases gradually diminishes and exports recover, domestic demand—mainly driven by private consumption and capital investment—is expected to increase, and growth in the 1% range on an annualized basis is expected to continue, exceeding the potential growth rate.

Changes in real GDP growth rate (fiscal year)

The real GDP growth rate is forecast at 1.0% in FY 2025, 1.0% in FY 2026, and 1.3% in FY 2027. By demand component, domestic demand—which turned to an increase in FY 2024 for the first time in two years—is expected to continue increasing from FY 2025 onward, while external demand is expected to continue posting a slight negative contribution from FY 2025 onward, having recorded a negative contribution of –0.5% compared to the previous year in FY 2024 for the first time in two years. Although the impact of the Trump tariffs will gradually fade, exports are expected to grow only modestly throughout the projection period, amid the continued slowdown in overseas economies and the yen’s appreciation. Therefore, they cannot be expected to play a leading role in driving the economy.

Property income pushes up households’ disposable income
Real disposable income (seasonally adjusted) is currently at almost the same level as the pre-COVID-19 period (2019 average). Compensation of employees in nominal terms has been sharply rising, although this has been offset by high inflation, and it had continued to decline in real terms. However, it turned to an increase compared to the previous year in the April–June quarter of 2024 for the first time in 11 quarters, and has now increased for six consecutive quarters. The increase in property income has recently become evident. Households’ property income had remained sluggish for a prolonged period due to the persistence of ultra-low interest rates, but has since substantially increased, mainly driven by higher dividends amid solid corporate earnings, becoming a factor pushing up disposable income. Looking ahead, with the “return to a world with interest rates,” an increase in interest income can also be expected.

Factors for changes in real disposable income

Real disposable income is likely to remain firm, supported by strong nominal wage growth, the increase in real compensation of employees resulting from the slowdown in inflation, and higher property income, such as interest and dividends.

Private consumption is expected to continue increasing, supported by the rise in real disposable income, with growth of 0.7% compared to the previous year in FY 2024, followed by 1.0% in FY 2025, 1.1% in FY 2026, and 1.0% in FY 2027.

Corporate investment behavior might become more cautious
Capital investment in the July–September quarter of 2025 increased by 1.0% from the previous quarter, marking the fourth consecutive quarterly increase. In the September 2025 Tankan (Short-Term Economic Survey of Enterprises), the capital investment plan for FY 2025 (all industries, all sizes, including software and R&D investment, excluding land investment) was revised up by 0.8% from the June survey, to 9.5% from the previous fiscal year.

Ordinary profits in FY 2024 (all industries, all sizes) increased by 5.6% from the previous fiscal year, although the growth rate significantly slowed from the levels seen in FY 2023. In addition, in the September 2025 Tankan, the ordinary profit plan for FY 2025 was down 4.8% from the previous fiscal year. While ordinary profit plans in September were also for decreases in FY 2023 and FY 2024, and thus should not necessarily be viewed too pessimistically, profit plans are lower than usual in manufacturing industries that are particularly vulnerable to the negative impact of the Trump tariffs, such as automobiles, showing a substantial decrease of over 20% from the previous fiscal year.

Capital investment has continued to recover, supported by high levels of corporate profits, mainly in labor-saving investment to address labor shortages, information-related investment for digitalization, and construction investment associated with the expansion of e-commerce. However, moving forward, investment behavior might become more cautious, particularly in manufacturing industries where the profit environment is deteriorating.

Capital investment is expected to increase by 1.9% compared to the previous year in FY 2024, accelerate to 2.9% in FY 2025, then slow somewhat to 2.6% in FY 2026 due to the slowdown in profit growth, before subsequently increasing by 3.0% in FY 2027 as growth accelerates again, supported by a recovery in corporate profits as the impact of the Trump tariffs dissipates.

Price outlook
Consumer prices (excluding fresh food; hereafter core consumer price index (CPI)) had been moving in the 3% range compared to the previous year since December 2024, but fell below 3% in August (2.7%) and September (2.9%) 2025, as support measures for electricity and city gas were resumed and the rate of increase in food prices slowed.

The provisional gasoline tax rate will be abolished at the end of December 2025. In advance of this, the subsidy of ¥10 per liter is being increased in stages to ¥15 from November 13, ¥20 from November 27, and ¥25.1 on December 11, equal to the current provisional additional tax portion. When the provisional tax rate is abolished, gasoline prices will fall by ¥27.61 (¥25.1 plus consumption tax). Assuming that crude oil prices and the exchange rate remain at their current levels, the retail price of regular gasoline—which was ¥173.5 per liter as of November 10 when the subsidy was ¥10—will decline to the upper ¥150 range following the abolition of the provisional tax rate, and core CPI will be pushed down by around 0.2 percentage points.

Support measures for electricity and city gas rates have been intermittently implemented since January 2023 (for usage from January to May 2023, from August to October 2024, from January to March 2025, and from July to September 2025). As part of its measures against high prices, the government has indicated its intention to implement usage support measures from January to March 2026, with an increased subsidy amount compared to the previous year.

While the energy component of the CPI was up 2.3% compared to the previous year as of September 2025, it is expected to decline in December 2025, and its contribution to the core CPI inflation rate is projected to deepen to nearly –1 percentage point toward the end of FY 2025.

Core CPI inflation is expected to slow from the current level of around 3% to the low 2% range toward the end of 2025, and fall below 2% after entering 2026, when the abolition of the provisional gasoline tax rate and the support measures for electricity and city gas overlap. It is expected to remain in the upper 1% range during 2026, but it is likely to return to the 2% range after entering 2027 as the deceleration in the rate of increase in goods prices caused by the appreciation of the yen is more than offset by the faster pace of increase in service prices driven by continued high wage growth.

Core CPI is projected to increase by 2.7% compared to the previous year in FY 2024, followed by 2.7% in FY 2025, 1.8% in FY 2026, and 2.1% in FY 2027. Core-core CPI (overall excluding fresh food and energy) is projected to increase by 2.3% compared to the previous year in FY 2024, followed by 3.0% in FY 2025, 2.1% in FY 2026, and 2.2% in FY 2027.

Forecast ofconsumer prices (excluding fresh food)

Outlook for the European (Euro area) economy

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