Japan Surprises 2025
Ten possible twists and turns to watch for in the Year of the Snake
Predicting the future is both a science and an art. Science-based quantitative forecasts may appear more credible, but are ultimately doomed to miss real breakthroughs. This is because the focus on the past means you cannot escape modeling the future as a recurrence of what has happened before. In contrast, forecasts based on intuition, inspiration, or experience are often seen as not credible and easily dismissed. Like a beautiful Bach sonata, the former follows a predictable logic, while the latter resembles an inspired jazz solo, delivering genuine surprises.
What we know for sure is that 2025 will be shaped by both the evolution of existing trends and the truly unexpected. And with the Year of the Snake poised to be a good one for Japan, here are 10 possible twists in what I hope will be a happy, healthy, and prosperous year for all readers of The ACCJ Journal.
1. Japan’s inflation rate spirals.
Inflation will accelerate in Japan during 2025, ending up significantly higher than in the United States, Europe, and China. Why? On top of continued cost-push inflation from a weak yen, demand-pull inflation will be turbocharged by three factors: wages rising faster than expected, the real estate boom delivering a more powerful positive wealth effect than anticipated, and both monetary and fiscal policy remaining too stimulative for too long.
2. No-more-tax-hikes policy leads LDP to win.
The Liberal Democratic Party’s (LDP’s) loss of parliamentary control in 2024 was a shock, and with it came a significantly higher risk of tax hikes. If the LDP reasserts its pro-business, pro-risk, pro-deregulation stance, the party’s leadership credentials will grow. The greater the contrast to the more socialist-inclined opposition parties, the greater the chances of a strong LDP comeback, possibly in a double election of both the upper and lower houses of the Diet in July. The upper house election is mandatory, while the lower house election can be called by the prime minister—probably Ishiba’s swan song.
3. Next-gen LDP leaders promote abolition of inheritance tax.
Over the next 15 years, an estimated ¥500–750 trillion of household wealth will become unstuck due to inheritance. That’s 1–1.5 times Japan’s gross domestic product (GDP). Much will be used to pay down the national debt. At more than 50 percent, Japan’s inheritance tax rates are famously high. While this makes the accountants happy, it doesn’t create growth or drive investments in future prosperity.
A long-overdue, positive surprise would be if Japan’s next-generation leaders demanded reform of the inheritance tax. Japan could take a cue from the otherwise much-admired Nordics. Recently, Sweden cut its inheritance tax to zero and Denmark dropped its to 15 percent—policies that promote channeling the accumulated wealth of the baby boomers into future investments. Now that’s worthy of being called new capitalism.
4. Japan wins a major global defense contract.
Japan’s national security policy took a clear turn in 2022, and the defense budget will more than double from one to two percent of GDP. A real surprise would be if, alongside increased defense spending, Japan were to win a major global defense contract. The greater the evidence that Japan’s spending on national security is actually an investment in global competitiveness, the happier taxpayers and investors would be.
5. More buyouts than initial public offerings (IPOs).
Japan’s management and leveraged buyout boom will accelerate, spurred on by pressure from shareholders and stock exchanges. Why stay listed and deal with all those shareholder demands when you can be private and control your own destiny?
The surprise? It’s possible that 2025 could be the first year that more companies go private and delist from the stock market than new start-ups go public and list via IPOs. As Japanese banks become more and more profitable—and thus keener to lend—this will become increasingly probable. The battle of foreign private equity bidding against local white knights will not just be fun, it will pull Japanese equities out of the value trap.
6. Japan Inc. starts buying start-ups.
Japanese chief executives could begin stepping out of their comfort zones and buying start-ups for future growth, rather than just relying on in-house research and development teams.
One reason for US corporate dynamism is the aggressive use of outside innovation to supplement, improve, or disrupt inside businesses—90 percent of US start-up exits are acquisitions, while 90 percent of Japanese start-up exits are IPOs. Mark my words: Japan’s new generation of CEOs is taking risks, is ready to challenge the complacent business-as-usual mentality of its executive teams by looking outside, is keen to create a positive legacy, and is not afraid to try and make 1+1=3 or 4.
7. Foreign home-helpers for Japanese families.
Japan will deregulate visas to allow working families to sponsor home-helpers and domestic caregivers. The combined problems of a growing labor shortage, a falling birthrate, and more women aspiring to a professional career cannot be solved without outside help for the family.
A very positive surprise would be if Japan followed the Hong Kong and Singapore models. There, professional couples can sponsor home-helpers with proper supervision and governance by local authorities. This is a pragmatic solution to help reverse the fallout of the declining birthrate and reduce runaway costs of public support for the care of children and the elderly.
8. Trump’s tariff threat works, opening China and avoiding a cold war.
The world worries about the potential negative effects of US President-elect Donald Trump’s trade war rhetoric in general and his tariff threats against China in particular. But what if the threat works and delivers a constructive reengagement between the United States and China, bringing about the de facto end of the prospect of a new cold war between these two superpowers?
It’s a long shot scenario, I know, but were it to happen, Japan probably would be a loser. Global investors would reinvest in Chinese risk assets, foreign direct investment into China would accelerate, and, most importantly, China’s globalization would be turbocharged. Its automobile and machinery companies could be allowed to build factories and create jobs in the United States, competing head-to-head with Japan.
Sure, it seems unlikely—internal US politics is easier to manage when there is an external enemy—but if Trump can make a big deal with China, the Japan premium will be at risk.
9. China is forced to start a currency war.
Another worry for Japan in 2025 also comes from China. If reengagement with the United States fails, China could face rising unemployment and deflation, resulting in more idle capacity and surging bad debt.
Already, China has been trying to stimulate growth since last summer by easing monetary and fiscal policy. If the economy does not respond and does not begin to accelerate by late spring, currency devaluation may become the last option. China being forced to start a currency war by the compounding forces of domestic deflation and US protectionism would force a dramatic disruption for not just Japan’s cyclical competitiveness, but its future prosperity.
10. Japan’s Sakura 15 women’s rugby team wins the World Cup.
On September 27, the final of the Women’s Rugby World Cup 2025 will be played at London’s Twickenham Stadium. Japan’s Sakura 15 is currently ranked 11th in the world. I’m told that reaching the quarterfinals is possible, and making the finals would be truly sensational. Japan beating the English on their home turf would be good fun, wouldn’t it? Go Sakura 15!
