Foreword 3

Basic statistics of Japan, 2025 7

Executive summary 8

1 Key Policy Insights 16

1.1. Reforms should continue to increase resilience to shocks 17

1.2. The economy is set to grow moderately despite external headwinds 19

1.3. Monetary policy should continue to normalise at a gradual pace 24

1.4. The financial system seems sound but faces risks 26

1.5. Building fiscal buffers and ensuring long-run fiscal sustainability 29

1.6. Addressing labour and skill shortages 40

1.7. Towards a climate-resilient net-zero economy 54

References 67

2 Reigniting productivity growth 72

2.1. Japan’s productivity lags its peers 73

2.2. Strengthening competition 76

2.3. Encouraging foreign direct investment to unlock productivity spillovers 86

2.4. Mobilising resources for a more innovative and dynamic economy 92

References 111