As of July 30, 2026, Japan's government lowered its real GDP growth forecast for fiscal year 2026 from 1.3% to 0.9%, citing higher energy costs stemming from the Middle East conflict. [1] The revised outlook reflects the economic impact of rising oil and natural gas prices on households and businesses, although the government maintained that the economy is expected to continue a moderate recovery supported by private consumption, business investment, and wage growth. The government also raised its inflation forecast, expecting higher import and energy costs to keep price pressures elevated despite fuel subsidies. Officials said risks remain from continued geopolitical uncertainty and volatile energy markets, but projected that real wages would continue improving as inflation gradually moderates. For the energy sector, the downgrade highlights Japan's continued exposure to imported fossil fuels and the broader economic consequences of energy price shocks. Higher fuel costs are expected to weigh on economic growth while reinforcing the importance of improving energy security and diversifying domestic electricity supply.
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