After years of deflation, Japan's economy is moving into a new phase. A resurgence in inflation, rising wages, a buoyant stock market and a sharp increase in foreign tourists are among the signs of growth.
After decades of deflation and low growth, signs of a recovery are beginning to emerge in Japan's economy. Factors including a resurgence in inflation, rising wages, a buoyant stock market and a sharp increase in foreign tourists are supporting the view that the economy is shifting from one characterized by insufficient demand to one characterized by insufficient supply.
As part of the movement in economic policy, the government approved a spending plan worth approximately $2.3 trillion in July 2026. The Bank of Japan shifted away from the monetary policy it had maintained for many years, raising its policy rate to 1%, while 10-year Japanese government bond yields were seen reaching long-term levels.
In the corporate sector, interest in investment and capital management has grown alongside the stock market's surge, accelerating long-delayed M&A transactions. Japan-related transaction value is forecast to reach a record $385.9 billion in 2025. Companies are also increasingly considering business integrations in the chemicals and semiconductor sectors.
At the same time, rising prices and interest rates are creating new pressures for households and companies. Inflation is outpacing growth in real incomes, while higher capital costs in financial markets are encouraging companies to make greater use of capital and accelerate restructuring.