Japan’s economy remained resilient in 2025 despite global trade headwinds. Real GDP growth rose to 1.4% year-on-year (you) over the nine months to Sep 2025 vs 0.1%  in 2024. Growth was supported by front-loaded exports, stronger business investment, and recovering private consumption. Inflation eased to 2.9% yoy in 3Q 2025 but stayed above the BoJ’s target. While the BoJ raised policy rates by 25 bp to 0.75% in Dec 2025, real interest rates remain very ow and financial conditions accommodative.

Private consumption rose 1.3% yoy up to Sep 2025, as employment stayed tight and wages increased, though inflation limited real income gains. Tourism continued to be a key growth driver, with inbound arrivals reaching record highs. While China–Japan tensions may temporarily reduce Chinese visitor numbers, past episodes suggest impacts are typically short-lived, with limited risk of escalation.

Real estate fundamentals remained strong across sectors. Residential markets benefited from high occupancies, rising rents, limited new supply, urban migration, and foreign and high-net-worth demand. Hospitality was a standout performer, supported by robust inbound tourism, constrained hotel supply, and supportive government policies, while prime urban retail benefited from tight vacancies and rental growth.

The investment outlook remains positive. Real estate investment rose 22% you to around JPY4.7 trillion, with cap rates broadly stable. Despite expectations of gradual rate hikes, positive yield spreads, rising rents, and strong domestic and offshore interest are expected to sustain demand, particularly for high-quality assets offering stable income and structural growth.