Japan Cuts Growth Forecast as Weak Exports Hit Recovery

Japan's government on Friday lowered its GDP growth forecast for the current fiscal year, as weaker exports weigh on an already fragile economic recovery.

In its revised outlook, the Cabinet Office reduced the inflation-adjusted gross domestic product (GDP) growth forecast for the fiscal year ending in March 2025 to 0.7%, down from the 0.9% projection issued in July. This downgrade follows a similar adjustment made in July, though the latest forecast still exceeds private-sector expectations, which predict a more modest 0.5% growth. The projection for the next fiscal year, however, remains unchanged at 1.2%.

Japan’s government typically publishes its economic forecasts in January, with a subsequent revision around July. A revision at this point in the year is unusual, underscoring the mounting pressures from slowing global demand and fragile domestic consumption.

On Thursday, the Bank of Japan (BOJ) chose to maintain its ultra-low interest rates, citing subsiding risks in the U.S. economy and hinting at conditions stabilizing to eventually support an interest rate hike. However, any sustained weakness in both global and domestic demand could challenge the BOJ's plans to fully exit a decade-long policy of monetary easing.

These economic forecasts are crucial as they form the basis for Japan’s budget planning. The Cabinet Office noted that rising prices are placing significant strain on low-income households, emphasizing the need for measures to support those most affected.

Additionally, private-sector representatives on the government’s economic council urged for robust economic policies to help stimulate private consumption and regain growth momentum. In response, Prime Minister Shigeru Ishiba’s administration has committed to drafting a large spending package later this year. This initiative aims to alleviate the financial burden on households facing rising living costs while also bolstering Japan's overall economy.