Japan 2025 Outlook Shows Growth, Wage Increases and Monetary Policy Changes – Barclays By Investing.com
Investing.com– Barclays (LON: ) analysts predict that Japan’s economy will experience a revival in 2025, driven by domestic demand and strong wage growth, despite risks from US trade policy and political uncertainty.
Real gross domestic product (GDP) is expected to grow by 1.2% in FY25, exceeding the potential growth rate of 0.8%, analysts said in a note. This recovery followed modest growth of 0.5% in FY24, affected by disruptions such as the Noto peninsula earthquake and auto factory shutdowns in early 2023.
The annual spring wage negotiations, or “shunto,” are expected to result in a 5% wage increase, in line with FY24 levels. Barclays attributes this to companies addressing structural labor shortages and changing corporate profit-sharing practices.
These wage increases are expected to boost spending and contribute to a virtuous cycle of growth and inflation, according to Barclays.
Inflation is forecast to remain close to 2% in 2025, with a slight decline in the second half of the year as the yen strengthens and energy subsidies normalize. Core inflation, excluding energy and perishables, is expected to remain firm, supported by higher labor costs and strong services inflation, analysts forecast.
On the monetary policy front, Barclays expects the Bank of Japan to raise rates in March and October, with a terminal rate of 0.75%. However, political uncertainty – both domestic and international – could affect the timing of these adjustments.
Concerns include potential US tariffs under the incoming Donald Trump administration and Japan’s domestic political instability as the LDP-Komeito coalition navigates its minority government status.
Analysts at Barclays warned that extended uncertainty over global trade policy or the Japanese political landscape could weaken capital investment and business sentiment, particularly in manufacturing.
