Japan's economy returned to growth in the fourth quarter of 2025, creating room for the Bank of Japan to continue raising interest rates, despite the impact of US tariffs. This recovery is welcome news for policymakers, who have spent years working to pull the economy out of long-term stagnation. Preliminary data released by the Japanese government on Monday showed that real GDP grew 0.1% quarter-on-quarter in the October-December 2025 period. This follows a 0.7% contraction in the previous quarter. The median forecast from a Quick survey of economists was for a 0.4% increase. On an annualized basis, the economy grew 0.2% in the quarter. The results indicate that Japan has weathered the impact of US tariffs better than anticipated. Exports fell 0.3% quarter-on-quarter, a much smaller decline than the 1.4% drop in the previous quarter. Domestically, capital expenditure saw a slight increase of 0.2%, while personal consumption grew by 0.1%. These positive figures are likely to strengthen the Bank of Japan's confidence in the domestic economic recovery. Even amid a still-unstable global environment, the data opens the door for the central bank to further tighten monetary policy. However, following Prime Minister Sanae Takaichi's landslide election victory earlier this month, the central bank may need to strike a delicate balance between monetary and fiscal policy. While the data supports the Prime Minister's growth-oriented stimulus measures, her strong mandate to pursue expansive policies, including a food tax holiday, could complicate the central bank's task of managing inflation.