Japan Economy – Gradual Recovery Amid Global Headwinds

Japan’s economy is navigating a delicate balance as it enters Q4 2025, showing signs of gradual recovery after contracting in 2024. The Bank of Japan continues its gradual monetary tightening to counter persistent inflation, albeit moderating. Further the unemployment rate indicates slight softening in the labor markets with manufacturing PMI contracting for three straight months. The currency yen witnessed pronounced swings in Q3 2025 amid US tariff escalations, safe-haven outflows and revived carry trades. To tackle this BoJ adopted a gradual tightening pathway for its monetary policy. Overall, the equity landscape has shown resilience despite navigating through external volatilities. Companies are guiding for continued earnings growth thereby enabling the index to trade at a 21.2% premium to its 10-year average.