Investing.com-- Barclays (LON:BARC) analysts project Japan's economy will see a resurgence in 2025, driven by domestic demand and robust wage growth, despite risks from U.S. 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 rebound follows a modest 0.5% expansion in FY24, which was impacted by disruptions such as the Noto Peninsula earthquake and auto factory suspensions in early 2023.
The annual spring wage negotiations, or “shunto,” are anticipated to result in a 5% wage hike, consistent with FY24 levels. Barclays attributes this to companies addressing structural labor shortages and a shift in corporate profit-sharing practices.
These wage increases are expected to bolster consumption and contribute to a virtuous cycle of growth and inflation, according to Barclays.
Inflation is forecast to remain near 2% in 2025, with a slight dip in the latter half of the year as the yen strengthens and energy subsidies normalize. Core inflation, excluding energy and perishables, is projected to hold firm, supported by higher labor costs and strong services inflation, analysts predicted.
On monetary policy, Barclays expects the Bank of Japan to implement rate hikes in March and October, with a terminal rate of 0.75%. However, political uncertainty—both domestic and international—could influence the timing of these adjustments.
Concerns include potential U.S. tariffs under the incoming Donald Trump administration and Japan's domestic political instability, as the LDP-Komeito coalition navigates its minority government status.
Barclays analysts caution that extended uncertainty around global trade policies or Japan’s political landscape could dampen capex and business sentiment, particularly in manufacturing.