Japan's economy registered minimal growth in the fourth quarter of 2025, reversing a significant contraction from the previous quarter and providing justification for Prime Minister Sanae Takaichi to pursue more aggressive fiscal expenditure following a historic election victory.

According to a report released by the Cabinet Office on Monday, Japan's real gross domestic product (GDP) grew at an annualized rate of 0.2% in the three months ending in December, falling short of the median economist forecast of 1.6% growth. Consumer spending, the largest component of GDP, increased by 0.1%, highlighting the fragility of domestic demand as households continue to cope with inflation that has exceeded the Bank of Japan's 2% target for four consecutive years. Capital expenditure rose by 0.2%.

The data released on Monday underscores the uneven nature of the economic recovery, with growth lacking strong drivers beyond temporary factors. Nevertheless, these signs of weak economic activity are unlikely to deter the Bank of Japan from raising its benchmark interest rate later this year.