Japan’s economy continues to expand in 2026, with consensus forecasts from the IMF, Fitch, and others projecting real GDP growth of 0.7–0.9 percent for the year, supported by resilient exports tied to global AI demand, solid business investment, and rising real wages that bolster domestic consumption. Recent Q2 data showed 0.3 percent quarter-on-quarter growth despite higher energy costs and tighter monetary policy, extending the current expansion cycle. The Bank of Japan’s gradual rate hikes to around 1.25 percent reflect confidence in underlying demand pressures rather than overheating risks. While household spending remains soft and business failures have risen amid cost pressures, these factors have not derailed the positive trajectory. Tail risks include prolonged Middle East tensions driving sustained inflation or a sharper global slowdown that could tip growth negative.