Investing.com– Barclays (LON:) Analysts expect the Japanese economy to rebound in 2025, driven by domestic demand and strong wage growth, despite risks from US trade policy and political uncertainty.
Real GDP is expected to grow by 1.2% in FY25, exceeding the potential growth rate of 0.8%, analysts said in a note. The rebound follows a modest 0.5% expansion in FY24, which was affected by disruptions such as the Noto Peninsula earthquake and the suspension of auto plants in early 2023.
The annual spring wage negotiations, or 'shunto', are expected to result in a 5% wage increase, in line with FY24 levels. Barclays attributes this to companies addressing structural labor shortages and a shift in profit-sharing practices between companies.
These wage increases are expected to boost consumption and contribute to a virtuous cycle of growth and inflation, according to Barclays Bank.
Inflation is expected to remain near 2% in 2025, with a slight decline in the latter half of the year as the yen strengthens and energy subsidies return to normal. Analysts expect core inflation, excluding energy and perishable goods, to remain steady, supported by higher labor costs and strong services inflation.
Regarding monetary policy, Barclays expects the Bank of Japan to implement interest rate hikes in March and October, with a final rate of 0.75%. However, political uncertainty – both domestic and international – could affect the timing of these amendments.
Concerns include potential US tariffs under the incoming Donald Trump administration and domestic political instability in Japan, where the LDP-Komeito coalition is navigating minority government status.
Barclays analysts warn that extended uncertainty around global trade policies or the political landscape in Japan could dampen capital expenditures and business sentiment, especially in manufacturing.
