Goldman Sachs – 2026 Japan Economic Outlook

The Japanese economy is expected to grow steadily by 0.

8% in 2026, led by domestic demand despite some deceleration in external demand due to Japan-China diplomatic tensions. Continued high wage growth in the low-3% range is anticipated to support solid consumption and capital expenditure. Underlying inflation is expected to rise moderately with service prices increasing, while headline CPI inflation may decelerate due to slowing food prices. The Bank of Japan is forecasted to accelerate rate hikes, reaching a 1% policy rate by July 2026, with a terminal rate of 1.5%, aligning with the neutral rate. Fiscal soundness is maintained despite a large supplementary budget; however, permanent tax cuts and spending increases could reverse the declining debt-to-GDP ratio trend, posing risks to fiscal sustainability. The report highlights the importance of securing market confidence and appropriate debt management.