Tokyo, December 26: Japan’s government revised up its economic growth forecast for the current fiscal year and said growth is likely to accelerate in the following year, citing the impact of a massive stimulus package aimed at boosting consumption and capital expenditure.
Under projections approved by the cabinet on Wednesday, the economy is expected to expand 1.1% in the fiscal year ending next March, up from a 0.7% estimate in August, as the hit from U.S. tariffs proved smaller than anticipated. Growth is forecast to rise to 1.3% in fiscal 2026, with stronger domestic demand offsetting weaker overseas conditions.
The estimates are the first compiled under Prime Minister Sanae Takaichi’s administration, which has pledged large-scale spending to ease the burden of rising living costs on households while promoting investment in growth sectors.
The government expects household consumption to increase 1.3% in both fiscal 2025 and fiscal 2026, supported by tax breaks and easing inflation. Capital expenditure is projected to rise 2.8% in fiscal 2026, accelerating from an estimated 1.9% gain in the current fiscal year, helped by subsidies and tax incentives for investment in crisis management and strategic growth areas.
The projections will be used to draft the next fiscal year’s state budget, which is scheduled to be finalised on Friday.
In November, the administration unveiled a 21.3 trillion yen ($136.7 billion) stimulus package, including cash payouts to families with children, subsidies to reduce utility bills, and spending to promote investment in areas such as infrastructure, artificial intelligence and semiconductor manufacturing.
The expansionary fiscal stance is expected to push total spending to a record level in the next budget, raising market concerns about debt oversupply and contributing to a rise in Japanese government bond yields.
