In upheaval: stimulus boost, yen weakness and monetary policy considerations

The Japanese economy remains in a phase of moderate, increasingly self-sustaining recovery. However, in addition to the well-known structural improvements, geopolitical developments - particularly in the Middle East - are coming more into focus.

Macroeconomic environment

Japan is currently benefiting from a stable domestic economy and robust global demand in the industrial and technology sectors. Inflation has established itself sustainably above the 2.0% mark, supported by rising wages and improved corporate pricing power. As a result, the long-standing deflationary pressure appears to have been increasingly overcome.

Monetary policy - cautious normalization

The Bank of Japan has taken a historic step by abandoning its negative interest rate policy. Despite initial adjustments, monetary policy remains expansive by international standards.

The challenge is to continue normalization without jeopardizing the fragile recovery - especially against the backdrop of external shocks.

Energy supply and geopolitical risks

As a country with few natural resources, Japan is highly dependent on energy imports. The escalation in the Middle East, in particular a possible or ongoing conflict with Iran, therefore represents a key risk. Rising oil and gas prices have a double negative impact on Japan:

• Imported inflation increases
• Trade balance comes under pressure
• Household purchasing power is weakened

In the short term, this may continue to support inflation, but at the same time it increases the risk that the BoJ will have to act in a difficult area of tension between supporting growth and combating inflation.

Currency development - yen in a field of tension

The yen remains weak and is currently providing support for export-oriented companies. At the same time, a weak yen is boosting imported inflation - particularly in the energy sector.

A possible appreciation in the wake of further monetary policy adjustments or global uncertainties remains a key influencing factor.

Corporate sector - structural improvements intact

Independent of short-term risks, the structural investment case remains intact: Japanese companies continue to improve their capital allocation, increase their return on equity and focus more on shareholder value. Initiatives by the Tokyo Stock Exchange further reinforce this trend.

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Expected GDP 2026 0.6%
Expected inflation 2026 1.7%
Japanese key interest rate 0.81%

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Mimi Haas, Lic. rer.pol. HSG, M.A. in Banking and Finance HSG, Partner

_{Sources: OECD, Bank of Japan and IMF}

_{As of: 25.03.2026}