Prime Minister Takashi Announces 3.4% Economic Growth Forecast for 2026, G7 to Discuss China Export Restrictions

Prime Minister Takashi's Economic Outlook

Prime Minister Sanae Takashi projects a nominal GDP growth of 3.4% and a real wage increase of 1.3% for 2026. During her New Year’s celebration speech, she emphasized a "responsible yet proactive fiscal policy" and pledged bold investments in key sectors, signaling a strong economic vision for the year ahead[1].

The Bank of Japan raised its policy interest rate by 0.25% at the December monetary policy meeting, with the government supporting this move. Amid rising prices due to a weaker yen, market watchers are closely watching efforts to ease concerns and stabilize the economy[1].

Finance Minister’s Bold Statement on Economic Growth

The Finance Minister called for “breaking through ceilings” during a gathering of top business leaders, expressing optimism about Japan’s economic strength. With Prime Minister Takashi’s high approval ratings, her government is gearing up for a robust start[1].

Budget and Fiscal Policy Updates

• The 2026 budget proposal includes approximately $84 billion (3.6% increase) for defense spending and around $290 billion (10.8% increase) for international aid.
• Since Takashi’s administration took office, the yen has depreciated and long-term interest rates have risen, surpassing the 2% mark[2].

The combined effect of supplementary and regular budgets is expected to have limited impact on the economy, with most delays in spending unlikely to cause major disruptions[4].

China’s Export Restrictions and Their Impact on Japan

China is tightening export controls on both military and civilian goods, especially concerning rare earth minerals, which are critical for many tech industries. On the night of the 12th, the G7 nations will hold talks to develop supply chains that reduce dependence on China[5].

Meanwhile, the number of Chinese tourists visiting Japan in November increased by only 3%, reflecting lingering tensions in Japan-China relations. Chinese travel restrictions are easing over-tourism concerns, but there are worries about broader economic impacts on Japan[2].

Key Economic Indicators

• While November saw a 22.8% year-over-year increase in visitors from China, overall numbers remain subdued.
• Lower fuel prices due to the suspension of temporary gasoline tax hikes are expected to keep inflation in check through December[3].

This has sparked discussions about how these price trends affect everyday life, with some policies aimed at controlling inflation potentially helping household budgets[3].

Political and Diplomatic Moves

Prime Minister Takashi is considering dissolving the House of Representatives at the start of the upcoming session to push for stronger economic reforms. She has communicated this plan to party leaders as part of her strategy for a decisive mandate[4].

Additionally, she is scheduled to meet with South Korean President Lee Jae-myung tomorrow, with expectations of progress on economic cooperation and diplomatic relations[4].