Looking Ahead: Policy, Risks & What to Watch

With the Q3 contraction now confirmed, attention turns to how policy and global conditions will play out in the months ahead for Japan. The new Prime Minister Sanae Takaichi is expected to lean into fiscal stimulus to support growth, given the limited contribution from consumer spending. On the monetary side, the Bank of Japan appears unlikely to raise interest rates soon, as the economic strength is thin and inflation remains a concern. Export and trade pressures remain a key risk: high tariffs (especially from the U.S.) and weak overseas demand could continue to weigh on Japan’s external sector. In short: While Q3 wasn’t great, it’s not disastrous — but the many headwinds mean Japan will need support from both business investment and public policy. It will be important to monitor upcoming data on consumption, exports and business investment to see if the slight resilience in capex can translate into a broader recovery.