Japan’s economy barely grows in the last quarter as exports slow, with 2025 expansion just 1.1%.

Japan’s economy grew at a modest 0.2% annual pace in the final quarter of 2023, contributing to an overall growth rate of just 1.1% for the year, according to government data released Monday. While this marks the fastest expansion since 2022, the figures highlight the ongoing challenges facing the world’s fourth-largest economy.

The latest seasonally adjusted preliminary data shows private consumption increased at a 0.4% annualized rate during the October-December period. However, this modest gain was largely offset by a 1.1% decline in exports, underscoring Japan’s vulnerability to global trade fluctuations. On a quarter-to-quarter basis, the economy expanded by a mere 0.1%.

Japan narrowly avoided a technical recession—defined as two consecutive quarters of economic contraction—after experiencing a 0.7% contraction in the July-September period. The economy had previously grown by 0.5% in the April-June quarter.

The sluggish performance reflects broader structural issues that have plagued Japan for years. Despite being an export powerhouse with global brands like Toyota, Sony, and Nintendo, the country has struggled with persistent deflation, an aging population, and weak domestic consumption.

International pressures have further complicated Japan’s economic outlook. Trade tensions, particularly tariffs imposed by the Trump administration, have created headwinds for Japanese exporters. The country’s heavy reliance on exports makes it particularly vulnerable to shifts in global trade policies and economic conditions in key markets like the United States and China.

Prime Minister Sanae Takaichi, who recently secured a decisive victory in general elections, is expected to implement new policies aimed at revitalizing the economy. Following her landslide win earlier this month, Takaichi has promised expansionary fiscal measures, including increased government spending and a suspension of Japan’s sales tax on food items.

These proposed measures reflect a continuation of the economic stimulus approach that characterized “Abenomics,” the economic policy framework introduced by former Prime Minister Shinzo Abe. While that strategy helped pull Japan out of decades of stagnation, sustainable growth has remained elusive.

Economic experts note that Japan faces unique challenges that conventional stimulus measures alone may not address. The country’s rapidly aging society and shrinking workforce create fundamental constraints on growth potential. Nearly 30% of Japan’s population is over 65, placing enormous pressure on social security systems and limiting consumer spending power.

Despite these obstacles, there are some positive indicators. The 1.1% growth recorded for 2023 represents an improvement over recent years and suggests the economy has largely recovered from pandemic-related disruptions. Tourism has rebounded significantly, with foreign visitors returning to Japan in large numbers following the lifting of COVID-19 restrictions.

Looking ahead, the government projects the economy will expand at an average rate of about 0.6% in the near term. This cautious forecast acknowledges the structural limitations facing Japan while suggesting modest optimism about continued recovery.

Financial markets have responded with measured reactions to the latest economic data. The yen has shown minimal movement against major currencies, while the Nikkei index has maintained relative stability, indicating that investors had largely anticipated these results.

For ordinary Japanese citizens, the tepid growth translates to continued caution in household spending and modest wage increases, even as some companies report record profits. This disconnect between corporate performance and household prosperity remains one of the key economic policy challenges for the Takaichi administration.

As Japan navigates its economic future, policymakers face the delicate task of stimulating growth while addressing long-term structural reforms needed to adapt to demographic realities and changing global trade patterns.