Japan’s Economic Outlook Amid U.S. Politics

TOKYO (Reuters) – Japan’s government on Thursday maintained a cautious outlook for the economy, wary of U.S. President Donald Trump’s policies and their potential global impact.

The government noted fluctuations in financial markets as another factor to monitor, while preserving its view of moderate economic recovery in January, fueled by steady wage gains and a robust corporate sector.

An official from the Cabinet Office stated, “Executive orders on various policies, such as immigration and energy, will affect economies both in the U.S. and abroad.”

Trump’s tariff threats against key trading partners have created uncertainty among investors and policymakers, affecting global markets since before and after the November 5 U.S. election results.

A recent survey indicated that most Japanese firms operating in the U.S. are preparing for the repercussions of Trump’s policies. Japan’s investment in the U.S. has continuously increased, ranking first for five consecutive years since 2019, with Japanese companies leading in job creation within the manufacturing sector.

In its January report, the government maintained its views on key economic areas, noting that private consumption—which constitutes more than half of the Japanese economy—was “picking up,” and corporate profits were on the mend.

The report posited that gradual economic recovery is likely, supported by improvements in employment and wage environments. Notably, Japan’s November base salary rose at the fastest pace since 1992, following agreements on higher pay during spring negotiations.

Japan’s largest business lobby, Keidanren, and trade unions initiated this year’s wage discussions on Wednesday, as policymakers remain focused on the spread of wage momentum to smaller companies.

This monthly report precedes the Bank of Japan’s monetary policy decision due at the end of its January 23-24 meeting. The central bank is likely to raise interest rates unless affected by any Trump-induced market disruptions, while also reiterating its commitment to continue increasing borrowing costs if the economy improves.