Japan Economy – Gradual Recovery Amid Global Headwinds

Japan’s economy is navigating a delicate balance as it enters Q3 2025, showing signs of modest recovery after contracting in 2024. The Bank of Japan continues its gradual monetary tightening to counter persistent inflation, albeit moderating. Further the labor markets remain tight with sectoral divergence being witnessed in the manufacturing PMI. The currency yen strengthens amid policy shifts and but external risks continue to loom. To tackle this BoJ adopted a gradual tightening pathway for its monetary policy. Overall, the equity landscape is navigating through external volatilities, thereby moderating its rich valuations to a 6.5% discount to its 10-year average.