Downside Risk to the Economy Driven by Weak External Demand, Yen Appreciation and Brexit

「During the interim accounting period under review, from 1 January 2026 to 30 June 2026, Japan’s economy continued to recover moderately against a backdrop of improving employment and income conditions. Meanwhile, the outlook remained uncertain because of developments in the situation in the Middle East, volatility in financial and capital markets and the effects of rising prices.」

「During the interim accounting period under review, from 1 January 2025 to 30 June 2025, Japan’s economy continued to recover moderately against a backdrop of improving employment and income conditions and the effects of policy measures. Meanwhile, continued inflation has affected consumer sentiment, while U.S. trade policy and volatility in financial markets represent downside risks to the economy.」

「Meanwhile, concerns remained over the risk that the continued high interest-rate environment in Europe and the United States and the ongoing stagnation in China’s property market could weigh on Japan’s economy, as well as rising prices, future U.S. policy developments, the situation in the Middle East and volatility in financial and capital markets.」

「Meanwhile, concerns remained over the risk that the continued high interest-rate environment in Europe and the United States and weaker overseas economies could weigh on Japan’s economy, as well as rising prices, the situation in the Middle East and volatility in financial and capital markets.」

「During the cumulative first quarter under review, Japan’s economy continued to recover moderately, although it had recently shown some signs of stagnation, supported by the effects of various policies amid improving employment and income conditions. Meanwhile, concerns remained over the risk that the effects of global monetary tightening and weaker overseas economies could weigh on Japan’s economy, as well as rising prices, the situation in the Middle East and volatility in financial and capital markets.」

「Although the economy continued to recover moderately despite some signs of stagnation, concerns remained over the risk that weaker overseas economies could weigh on Japan’s economy amid continued global monetary tightening, as well as rising prices, the situation in the Middle East and volatility in financial and capital markets.」

「Amid continued global monetary tightening, concerns remain over the risk that weaker overseas economies could weigh on Japan’s economy, as well as rising prices, supply constraints and volatility in financial and capital markets.」

「During the cumulative first quarter under review, from 1 January 2023 to 31 March 2023, Japan’s economy continued to recover moderately despite some weakness. However, concerns remained over the risk that weaker overseas economies could weigh on Japan’s economy amid continued global monetary tightening, as well as rising prices, supply constraints and volatility in financial and capital markets.」

「During the cumulative third quarter under review, from 1 January 2022 to 30 September 2022, Japan’s economy showed signs of recovery, although concerns remained over the risk that weaker overseas economies could weigh on Japan’s economy amid continued global monetary tightening, as well as rising prices, supply constraints and volatility in financial and capital markets.」

「During the cumulative second quarter under review, from 1 January 2022 to 30 June 2022, Japan’s economy showed signs of recovery, although concerns remained over higher raw material prices and supply constraints caused by the prolonged situation in Ukraine and restrictions on economic activity in China.」

「During the cumulative first quarter under review, from 1 January 2022 to 31 March 2022, Japan’s economy remained in a severe situation amid the spread of the Omicron variant of COVID-19, despite some signs of recovery.」

「As infection-control measures were thoroughly implemented and vaccinations were promoted, the economy showed signs of recovery, supported by the effects of various policies and improvements in overseas economies. However, infectious diseases such as variant strains had not yet been brought under control, and uncertainty about the economic outlook continued.」

「During the cumulative third quarter under review, Japan’s economy remained in a severe situation because of the effects of COVID-19.」

「During the cumulative second quarter under review, Japan’s economy remained in a severe situation because of the effects of COVID-19. Although the global economy also remained severe because of the global pandemic, private consumption and capital investment recovered in the United States, and housing starts increased moderately.」

「During the cumulative first quarter under review, Japan’s economy remained in a severe situation because of the effects of COVID-19. Although the global economy also remained severe because of the global pandemic, private consumption and capital investment recovered in the United States, and housing starts increased moderately. China’s economy also recovered moderately.」

「During the cumulative third quarter under review, Japan’s economy remained in a severe situation because of the effects of COVID-19.」

「During the cumulative second quarter under review, Japan’s economy continued to deteriorate rapidly and entered an extremely severe situation amid the COVID-19 pandemic, as the government requested that individuals and companies refrain from going out and suspend business operations after issuing a state of emergency under the special measures law on 7 April, until announcing on 25 May that the state of emergency would be lifted nationwide.」

「The spread of the novel coronavirus originating in Wuhan, China, halted production activity in the Wuhan region, and the virus rapidly spread worldwide, including in Japan. As a result, the domestic economy was sharply depressed and entered a severe situation.」

「During the fiscal year under review, exports remained sluggish in manufacturing because of the slowdown in overseas economies and the effects of major typhoons, while consumer-related sectors such as retail declined because of the consumption tax increase. Meanwhile, sectors such as information services in nonmanufacturing remained firm against a backdrop of expanding software investment, and the moderate economic recovery continued.」

「During the third quarter under review, Japan’s economy showed strong signs of stagnation because exports to China remained sluggish. Nevertheless, private consumption continued to recover moderately on favorable employment conditions and rising wages, and capital investment also showed an upward trend as corporate earnings remained strong. Although the consumption tax was scheduled to increase in October, the resulting increase in the burden on households was expected to be eased by measures such as the introduction of a reduced tax rate, avoiding a sharp decline in consumption. Accordingly, the economy was expected to resume a moderate recovery led by domestic demand.」

「Japan's economy in the second quarter continued to show strong stagnation, as non-manufacturing production activity continued to expand, driven by domestic demand, while manufacturing remained weak because of lower exports. However, companies continue to take an active stance toward capital investment. In the non-manufacturing sector, investment in labor-saving and rationalization measures is advancing against a backdrop of increasingly severe labor shortages and work-style reforms. In manufacturing, factory reconstruction is becoming more active because of the need to replace aging facilities. As underlying investment demand remains strong, the likelihood that manufacturers' investment sentiment will deteriorate substantially appears small. Personal consumption is expected to benefit to some extent from government economic measures designed to offset the decline in rush demand following the consumption-tax increase scheduled for October, but the outlook remains difficult to view optimistically.」

「Japan's economy during the cumulative first quarter showed some signs of stagnation. Looking ahead, a moderate recovery led by domestic demand is expected to continue, although risks remain in external demand.」

「The risk that the consumption-tax increase scheduled for October 2019 will trigger a recession is also considered small, and a substantial decline in construction demand after the Tokyo Olympics is expected to be avoided.」

「In the housing-related and construction industries to which the Company belongs, a rush to start housing construction is expected to become evident before the consumption-tax increase scheduled for October 2019. However, the impact is expected to be smaller than in the past because the increase will be smaller than the previous one, the government will implement measures to level out rush demand, and the number of households consisting of married couples with children, the main buyer segment, is declining.」

「The outlook is for the recovery to continue, supported by increased exports as the global economy expands, higher construction investment driven by redevelopment projects in the Tokyo metropolitan area related to the Tokyo Olympics, and improving employment and income conditions resulting from wage increases. However, continued attention is required regarding the effects on household and corporate sentiment of the Trump administration's trade policies, turmoil in financial and capital markets, and uncertainty surrounding the government's planned consumption-tax increase, as well as downside risks to the Chinese economy and global IT demand trends.」

「Personal consumption also showed signs of recovery against a backdrop of improving employment and income conditions. Real consumer spending in January rose 2.0% year on year, returning to positive growth for the first time in 2 months, supported by increases in renovation work and domestic and overseas travel.」

「Japan's economy recovered moderately during the fiscal year. Production increased in the corporate sector, while the household sector also showed a moderate recovery. As corporate earnings improved, capital investment also began to recover moderately.」

「During the cumulative third quarter, Japan's economy was recovering moderately, as industrial production rose month on month in August for the first time in 2 months and the inventory index fell month on month for the third consecutive month. Continued improvement in employment conditions is also expected to support consumption. However, sluggish wage growth and higher social insurance premiums are expected to weigh on disposable income, and the recovery in consumption remains slow.」

「Nevertheless, attention must be paid to the effects of uncertainty in overseas economies and volatility in financial and capital markets.」

「During the cumulative first quarter, Japan's economy continued to recover moderately, and the improvement in the earnings environment continued to support corporate earnings. Looking ahead, corporate earnings are providing support for business sentiment as the yen remains weaker than companies' assumed exchange rates. However, uncertainty remains over overseas developments, including the protectionist policies of the Trump administration in the United States and the political situation in Europe, prompting increasingly cautious views.」

「Although corporate production activity is recovering, consumption remains sluggish, and the overall outlook continues to lack clarity.」

「Following the UK referendum result in late June to leave the EU, the yen appreciated in the foreign exchange market and share prices fell sharply. Although conditions have shown some signs of stabilizing recently, the economy remains vulnerable to downside pressure for the time being, including through deterioration in sentiment and corporate earnings.」