Lackluster GDP Figure: Economic Vitality Won’t Return If Depreciation of Yen Goes Unaddressed

Editorial

14:59 JST, February 17, 2026

Persistent high prices are weighing on economic growth. To regain vitality through domestic demand, it is essential to correct the yen’s excessive depreciation and create an environment conducive to wage increases.

Preliminary figures for the real gross domestic product in the October-December 2025 quarter showed an annualized 0.2% increase from the previous quarter. While this marks a return to positive growth after two consecutive quarters of decline, it fell significantly short of private research institutions’ forecasts, which had been in the mid-1% range.

The lackluster figure can be attributed to growth in personal consumption — which accounts for over half of GDP  — being essentially flat, at just 0.1%. This growth rate slowed from a 0.4% rise seen in the July-September quarter.

For Japan, which relies on imports for food and energy, the weak yen exacerbates the problem by fueling higher prices. This latest GDP report also noted sluggish consumption of food items.

Wage increases have failed to keep pace with rising prices, resulting in negative real wage growth since spring 2022. When the price of food, which is an essential item, is expensive, a cooling of consumer sentiment is inevitable.

Furthermore, exports declined for a second consecutive quarter due to the impact of high U.S. tariffs. The outlook remains highly uncertain.

Meanwhile, nominal GDP for the full year in 2025 increased by 4.5% year-on-year. The figure has steadily risen for five consecutive years to ¥662.8 trillion.

However, inflation played a significant role in increasing this figure, and the public has not been able to fully feel the benefits.

To revitalize the Japanese economy, the first step is to correct the yen’s excessive depreciation. For this, it is crucial for the government to maintain fiscal discipline and secure the trust of the financial markets.

The exchange rate issue is also significant from the perspective of Japan’s national strength.

Since international comparisons of GDP are made in dollar terms, if the yen is allowed to remain weak, Japan’s global GDP ranking will likely remain depressed.

According to International Monetary Fund projections, Japan is expected to drop below India to fifth place globally in 2026. By 2030, it could potentially slip to sixth place, falling behind Britain.

If Japan’s presence in the global economy declines, it could be disadvantaged in price negotiations and transactions. This would also be detrimental to the vision of the administration of Prime Minister Sanae Takaichi to build a “strong economy.”

In financial markets, a view is spreading that the ruling Liberal Democratic Party’s historic landslide victory in the House of Representatives election has alleviated its immediate need to acquiesce to irresponsible tax cut demands from opposition parties. Consequently, the yen is not currently weakening further, and long-term interest rates are trending downward.

The Takaichi administration should leverage this period of calm in the markets to build momentum toward achieving wage increases that outpace inflation.

(From The Yomiuri Shimbun, Feb. 17, 2026)