TOKYO (Kyodo) -- The Japanese economy is expected to continue to grow at a moderate pace in 2025 supported by solid consumer spending on the back of wage hikes and the government's policies aimed at easing inflation pain.

Stimulus efforts overseen by the administration of Prime Minister Shigeru Ishiba will be in focus ahead of an upper house election in summer, which follows his ruling coalition's poor showing in October's general election. Analysts also warn of downside risks from U.S. President-elect Donald Trump's protectionist approach to international trade.

"It is feared that higher tariffs promised by President Trump on China and other countries could put a damper on the global economy, eventually inflicting a blow on Japan," Takafumi Fujita, an economist at Meiji Yasuda Research Institute, said.

The ruling coalition led by Ishiba's Liberal Democratic Party lost control of the House of Representatives in the general election, a result that leaves the bloc needing cooperation from opposition parties to pass bills and budgets in the lower chamber.

With households struggling due to rising prices, attention will be on whether significant wage increases seen in 2024 will continue into next year and help improve consumer sentiment.

Adjusted for inflation, wages failed to grow consistently this year and are expected to remain unstable in early 2025. Ishiba apparently felt the need to focus on underpinning private consumption, which accounts for more than half of the nation's gross domestic product.

To do that, Ishiba's government has crafted a 39 trillion yen ($249 billion) stimulus package for fiscal 2024 through March, featuring subsidies to curb higher energy costs between January and March and one-off cash handouts to low-income households.

"Real wages will likely grow in the April-June quarter or later as energy prices are projected to stabilize, with the help of envisioned higher salaries following next spring's annual wage negotiations," Fujita said.

In 2024, Japanese companies agreed to increase salaries by an average 5.10 percent in the "shunto" spring wage talks between management and labor unions, offering a more than 5 percent increase for the first time in 33 years, according to the Japanese Trade Union Confederation.

For 2025, the confederation, known as Rengo, has decided to demand pay hikes of 5 percent or more, aiming to maintain the wage growth momentum.

Rengo also seeks to realize wage increases of 6 percent or more for small- and medium-sized companies which employ an estimated 70 percent of the country's workforce, as their employees tend to receive more modest gains than workers at larger firms.

Kenta Domoto, an economist at Mitsubishi Research Institute, anticipated that salary increases would persist into 2025.

"As more individuals aim to switch jobs, companies often offer elevated salaries to attract talent," Domoto said, adding that businesses are also compelled to pay more to current employees to retain them.

Among public and private institutions, the Organization for Economic Cooperation and Development projected the Japanese economy to expand 1.5 percent in 2025, buoyed by wage increases and corporate investment.

Analysts forecast capital spending will remain solid in 2025 as companies will be more focused on investing in areas ranging from decarbonization to digitalization as well as efforts to improve productivity.

But they cast doubt on the strength of exports amid uncertainty over the outlook for the Chinese and European economies, especially after the return of Trump to the White House on Jan. 20 with his unpredictable leadership style and "America First" policies.

Shunsuke Kobayashi, chief economist at Mizuho Securities Co., expected Trump's proposed tax reductions will support the U.S. economy and be positive for Japanese firms operating there.

But Kobayashi also warned of higher tariffs Trump has pledged to impose on U.S. imports, estimating that an additional 10 percent levy would push down Japan's real GDP by 0.13 percentage point.

In addition, Trump's trade policy is almost certain to cause tensions between the United States and China, and any retaliatory move by Beijing is likely to worsen relations between the world's two largest economies and hit global growth.

Such a development could lower Japan's real GDP by an additional 0.12 point, according to Kobayashi.

"If that happens, capital investment would decline due to expectations that exports will drop, eventually negatively affecting the broader economy," Kobayashi said. Such an outcome may cause companies to be reluctant to raise salaries, he added.