Japan's economic map shows signs of recovery by the end of Q1 2026

As February progresses, Japan’s economic outlook begins to take clearer shape following the weak data that characterized the end of 2025. ING analysts project that economic activity figures will see a significant acceleration in the coming months, reversing the slowdown observed in the fourth quarter when GDP grew below expectations. This recovery would be supported by factors ranging from fiscal stimulus to winter salary bonuses that have historically driven domestic consumption.

Expected rebound in industrial production and consumption after a weak year-end

The recovery in the economic landscape is expected to be more pronounced in industrial production and retail sales during the first months of the year. According to ING projections cited by Jin10, substantial growth is anticipated in these sectors, driven by the combination of fiscal stimulus measures and winter salary bonuses typical of this time of year in Japan. These factors have historically been key catalysts for boosting domestic demand after periods of relative contraction.

The magnitude of the expected rebound suggests a more robust recovery than seen in previous quarters, reflecting both Japan’s economic resilience and the effectiveness of the support policies implemented. These preliminary activity data could mark the beginning of a new, more constructive phase in the country’s economic performance.

Disinflationary pressure allows for stable interest rates

On the monetary front, the economic outlook offers favorable prospects for the Bank of Japan’s policy. Consumer inflation in Tokyo, considered a leading indicator of national trends, continues to show a downward trajectory, reinforced by moderation in energy, utility, and food prices.

In this disinflationary scenario, ING projects that core inflation—excluding the volatility of fresh foods—will fall below the 2% threshold in the short term. This dynamic would give the Bank of Japan greater flexibility to keep its monetary policy rate at the current 0.75% when it meets in March, avoiding premature moves in a context where growth recovery remains solid and price stability persists.

The current configuration of the economic landscape suggests a delicate but viable balance between stimulus for growth and inflation control, allowing the central monetary authority to maintain a cautious approach as upcoming data unfolds.