Japan's economy narrowly avoided a technical recession with a modest 0.1% GDP growth in Q4 2025, falling short of economist expectations. Private consumption drove the slight expansion, offsetting weakness in exports and public spending. The Bank of Japan remains optimistic, raising its economic growth forecast for the fiscal year to 0.9% and projecting a moderate expansion supported by potential wage increases and government economic measures. The growth comes amid ongoing discussions about a $550 billion investment pledge with the United States and follows Prime Minister Sanae Takaichi's recent election victory. Analysts suggest defense spending could become a significant catalyst for Japanese equities, with potential developments expected from upcoming diplomatic discussions between Takaichi and U.S. President Trump.
