Here is an article summarizing Japan’s latest economic trends as of February 2026.
The Japanese economy is currently at a critical juncture, marked by the full-fledged transition to a “world with interest rates” and a resilient recovery driven by domestic demand.
1. Interest Rates and Market Trends
Japan’s long-term interest rates (10-year bond yields) have risen to the low 2% range, with market discussions increasingly focusing on the realistic possibility of reaching 3%.
The Bank of Japan raised its policy interest rate to 0.75% at the end of 2025.
From the perspective of curbing yen weakness and ensuring price stability, expectations are growing for an additional rate hike to 1.0% by the latter half of 2026.
Against a backdrop of structural improvements in corporate earnings, Japanese stocks are maintaining their high-range trading.
A positive outlook is emerging, viewing rising interest rates as “economic normalization.”
2. The Path of GDP Growth and Prices
For 2026, many think tanks forecast real GDP growth at around 0.8% to 0.9%.
- Resilient Domestic Demand
High wage increases (spring labor negotiations) continue, with real wages rising above inflation beginning to lift stagnant personal consumption. - Inflation Rate
Core CPI (Consumer Price Index excluding fresh food) maintains momentum around 2%.
While the impact of import prices has run its course, price pass-through to services is progressing.
3. Risk Factors Facing the Economy
Despite the steady recovery, the following uncertainties also linger.
- Impact of Trump Tariffs
Risk of reduced exports to the U.S. due to U.S. trade policies. - Japan-China Relations
Geopolitical risks such as China’s rare earth export restrictions and voluntary travel curbs are weighing on supply chains and inbound consumption. - Fiscal Concerns
Market sentiment is torn between expectations for aggressive fiscal spending under the Takaichi administration and caution over the accompanying “bad interest rate rise (bond sell-off).”
Summary: Outlook for 2026
This year, Japan’s economy has moved beyond the goal of “escaping deflation” and stands at a new stage: “Can rising interest rates be harnessed as energy for growth?”
If wage increases and capital investment can successfully drive each other, this could present a favorable opportunity to raise the potential growth rate.
Key Indicator: The preliminary GDP figures for October-December 2025, scheduled for release on February 15, 2026, will be a major factor in future economic assessments.
