Japan Q4 GDP Misses Expectations at 0.2% Annualized; Tests PM Takaichi's Stance Amid BOJ Rate Hikes

Japan's fourth-quarter GDP expanded an annualized 0.2% in October-December, sharply below market estimates of 1.6%, testing Prime Minister Sanae Takaichi's economic strategy amid persistently high living costs and weak domestic demand. The reading was a small rebound from a revised 2.6% contraction in Q3 and translates to a 0.1% quarter-over-quarter increase, underperforming a median forecast of 0.4% growth. Private consumption rose 0.1% in Q4, down from 0.4% in Q3, and capital spending climbed 0.2%, lagging a Reuters poll of 0.8%. Net external demand contributed nothing to growth, down from a 0.3 point drag in July-September. The latest results suggest real wage growth remains negative, with economists projecting gradual expansion of 1.04% in Q1 and 1.12% in Q2 of 2026, pending stronger wage negotiations. The Bank of Japan is expected to maintain its accommodative stance to tame inflation, with the BOJ likely focused on curbing price pressures rather than policy changes in response to this report. Tariffs imposed by the United States on Japanese goods have cooled export momentum, with firms likely maintaining a cautious approach.