Japan’s economy is projected to expand 0.7% in 2026 per the latest IMF forecast, following 1.2% growth in 2025, with the Cabinet Office estimating 0.9% real GDP for FY2026 amid fiscal support and AI-driven exports that have offset higher energy prices. Positive Q2 GDP prints, real wage gains, and resilient domestic demand have sustained the longest expansion cycle since World War II, while the Bank of Japan’s gradual rate normalization to 1.25% reflects controlled inflation near target rather than overheating or contraction risks. This backdrop underpins the 95.5% market-implied probability against recession. Tail risks remain from Middle East energy shocks, yen volatility, or sharper global slowdowns that could pressure the export sector and force policy adjustments.