Japan's Economy Gaining Momentum: What Barclays Expects from BOJ's Next Move

Barclays is betting that the Bank of Japan will upgrade its FY2025 growth forecast from 0.6% to 0.8% in the coming quarterly review. Here’s what’s driving the shift:

The Numbers Behind the Upgrade

• Q2 GDP came in stronger than expected, signaling solid domestic demand
• Business confidence remains resilient, as shown in September’s Tankan survey
• Tariff uncertainty is easing, removing a major headwind for Japan’s exporters

According to Barclays economist Naohiko Baba, Japan’s economy is proving more durable than many anticipated. Corporate investment is holding steady, and consumers aren’t pulling back—exactly what the BOJ needed to see.

The Catch: BOJ Won’t Get Overly Optimistic

Don’t expect Governor Kazuo Ueda to pop the champagne just yet. Even with the upside revision, he’ll likely emphasize FY2026 downside risks—mainly around U.S. tariff policies and their delayed impact on Japan’s export sector.

What’s more, Barclays expects the BOJ to hike rates again in January 2026, continuing its slow-motion exit from years of aggressive monetary easing. The backdrop: persistent inflation pressures and stronger wage growth finally giving policymakers some room to tighten.

The Bigger Picture

This upgrade signals Japan’s economy is stabilizing, but it’s not a free pass. The BOJ faces a classic dilemma—raise rates too fast and you risk derailing growth; move too slowly and inflation could re-accelerate. Expect Ueda to walk a careful line.