Japan Weeks Ahead: BOJ Has Cleared First Major Goal of Lifting Near Zero Inflation to around 2% But Still Needs to Anchor Price Rises amid Upward Pressure from High Energy, Import Costs

–Q3 GDP Forecast to Be Nearly Flat with Slight Growth as Bad Weather Dampened Consumer Spending, Net Exports Likely Posted Technical Slip After Q2 Import Plunge

By Max Sato

(MaceNews) – Bank of Japan policymakers have declared that the bank’s goal set more than a decade ago to lift near zero inflation to a stable 2% has been all but achieved but noted that their job is not done yet: They still need to anchor inflation around its 2% target amid risks of high energy costs spreading to the prices for other goods and services.

After the bank’s board decided to leave the policy interest rate unchanged at 1.25% on Friday, Governor Kazuo Ueda told a news conference that there is still room for the rate to be raised to be comfortably into a range of 1.1% to 2.5% that is considered neutral to economic activity.

That means there is still some excess monetary stimulus remaining in the financial system after years of super-low borrowing costs for households and businesses. The bank’s six rate hikes in the current cycle begun in March 2024 have been conducted in accommodative financial conditions but future rate hikes will be more about tightening in the face of upside risks to inflation.

In the bank’s quarterly Outlook Report, the board repeated that it will “continue to raise the policy interest rate and adjust the degree of monetary accommodation” in response to developments in growth, inflation and financial conditions.

Board members now believe that underlying inflation is “at a level that is generally consistent” with the bank’s 2% price stability target, instead of “nearing” the level as stated until the previous meeting. The board continues to describe financial conditions as “accommodative,” another reason for the need to raise interest rates further.

Governor Kazuo Ueda told a post-meeting news conference on Friday that it was a “milestone” for the bank to achieve the goal set in January 2013 as part of a policy coordination accord with the government.

But he quickly added that the bank still needs to anchor inflation around 2% in the longer term. “It is important to achieve a 2% inflation rate in a sustainable and stable manner, and we have not yet reached that point.”

The BOJ made it clear that the next move is to raise interest rates further at a gradual pace. The board is widely expected to lift the target for the overnight interest rate to 1.5% in December after leaving it at 1.25% at its Oct. 29-30 meeting and raising it by 25 basis points (0.25 percentage point) each in June and September.

Ueda said the board will continue to assess the cumulative effects of the six rate hikes conducted since March 2024 as part of the normalization of large-scale easing. The board needs to thoroughly check how small businesses are being affected by higher borrowing costs when it considers raising interest rates, the governor said.

After one to two more rate hikes, further action to stave off entrenched high inflation will “tighten” financial conditions, a clear shift from removing excess monetary stimulus. When that time comes, Ueda and his team will monitor data and decide whether to hold, raise or ease one meeting at a time.

There is no major economic data release in the coming week. Because of the public holiday on Nov. 3, household spending for September and the third quarter will be released in the following week, on Nov. 10. Real household expenditures are expected to post their 10th straight year-on-year drop in September as consumers remain cautious in the face of rising costs for food, energy and other essentials.

Household spending data is unlikely to prompt economists to adjust their forecasts for the preliminary GDP data for the July-September quarter due Nov. 16.

Japan’s economy is forecast to post its fourth straight quarterly growth in the July-September quarter but at a much slower pace than in April-June as stormy weather and rising costs dampened private consumption and net exports slipped back, partly offsetting a rebound in business investment. Public works spending continued to fall amid fading effects of the fiscal 2025 supplementary budget and lingering labor shortages.

The gross domestic product is forecast to be nearly flat, up just 0.1% on quarter, or an annualized 0.3%, slowing from a 0.4% increase (1.4% annualized) in Q2. Three of the 10 economists in a Mace News survey expect the Q3 GDP contracted slightly.

The median economist forecast showed all of the Q3 growth is seen coming from domestic demand (added 0.4 percentage point to GDP) while net exports slumped (trimmed GDP by 0.4 point) in a reverse mirror image of a rise in Q2, when imports plunged due to squeezed crude oil shipments from the war-hit Mideast Gulf. The government helped boost energy imports from the United States and other countries in Q3. Exports continued to show some resilience amid global projects to develop artificial intelligence.

Sunday, Nov. 1
North America switches to standard time from daylight saving time. New York will be 14 hours behind Tokyo in EST, instead of 13 hours in EDT. Note some Canadian provinces have decided to stay permanently on the daylight saving time year-round.

Tuesday, Nov. 3
– Japanese markets closed for the Culture Day public holiday.

Friday, Nov. 6
0830 JST (2330 GMT/1830 EST Thursday, Nov. 5) The Ministry of Health, Labour and Welfare releases September wages.

In revised August data, total monthly average cash earnings per regular employee in Japan rose 3.9% on the year, slowing from sharp gains of 4.3% in July, which was the highest increase since 4.4% in December 2024. The key wage indicator has risen for more than five years, indicating that firms are raising wages to secure qualified workers amid widespread labor shortages.

Base wages rose a solid 3.8% in August after rising at the same pace in July. The increase in one-time pay including bonuses decelerated to 1.8% from 5.3% and overtime pay was up 4.9% vs. 4.5% the prior month. Real average wages posted their eighth straight gain but the pace of increase remained below the growth rate in nominal terms at 1.6% following 2.0% previously.

Saturday, Nov. 7
0100 JST (1600 GMT/1100 EST Friday, Nov. 6) Bank of Japan Governor Kazuo Ueda deliveries a speech at the International Monetary Fund 2026 Michel Camdessus Central Banking Lecture in Washington D.C.

Monday, Nov. 9
1400 JST (0500 GMT/0000 EST Monday, Nov. 9) The Bank of Japan releases the September consumption activity index.

The supply-side indicator, which has a close correlation with revised GDP data, slumping a real 0.8% on the month in August on a travel balance adjusted basis after edging down 0.1% in July and falling 1.3% in June. The index dipped 1.0% on the April-June quarter, when it gained 1.2%.

Tuesday, Nov. 10
0830 JST (2330 GMT/1830 EST Monday, Nov. 9) The Ministry of Internal Affairs and Communications releases September, Q3 average household spending.

Japan’s real average household spending is expected to post its 10th straight year-on-year drop in September as consumers remain cautious in the face of rising costs for food, energy and other essentials. The decrease may come in smaller than the 3.1% in August, when stormy weather wreaked havoc in many regions and cooler weather dampened demand for summer clothing, air conditioners and other seasonal goods.

September retail sales data released on Oct. 30 showed an early arrival of cooler weather propped up demand for autumn clothing and the longer-than-usual Silver Week holidays boosted spending by both domestic and overseas shoppers, alleviating the dampening effects of rain storms and elevated costs of living.

Tuesday, Nov. 10
0850 JST (2350 GMT/1850 EST Monday, Nov. 9) The Bank of Japan releases the summary of opinions from the Oct. 29-30 meeting.

At the latest meeting, the bank’s nine-member board decided to leave the target for the overnight interest rate at 1.25% in an 8 to 1 vote as officials assessed the cumulative effects of the six rate hikes conducted since April 2024 as part of the normalization of large-scale easing. Most recently, the board raised the policy rate by 25 basis points (0.25 percentage point) each in June and September. Consumer inflation stands just above the bank’s 2% price stability target but the situation did not require a back-to-back or over-sized rate hike.

Board member Hajime Takata, an advocate for unwinding large monetary easing in the past at a faster pace, called for a 25-basis point hike in the policy rate to 1.5%, arguing that as the underlying inflation has reached 2%, the bank is in a new phase of lifting the short-term interest rate closer to a level considered neutral to economic activity in a nimble manner.

Governor Kazuo Ueda told a post-meeting news conference that it was a “milestone” for the bank to declare that underlying inflation is now “at a level that is generally consistent” with the bank’s 2% price stability target. It was a goal that the bank aimed to achieve in two years from April 2013, when it launched a campaign to reflate the economy through massive cash injections into the financial system.

The BOJ set its first clear inflation target in January 2013, heeding the demand by the then Prime Minister Shinzo Abe who brought his party back into power in a landslide win in general elections in late 2012. Abe promised to voters that he would overcome years of deflation and boost Japan’s economic growth with a policy mix of aggressive monetary easing, flexible fiscal spending and deregulation.  

Tuesday, Nov. 10
1400 JST (0500 GMT/0000 EST Tuesday, Nov. 10) The Cabinet Office releases the October Economy Watchers’ Survey conducted from Oct. 25 to Oct. 31.

The September survey released on Oct. 8 showed that the current sentiment index improved for the fifth straight month in September, thanks to the Sliver Week holidays from Sept. 19 to Sept. 23 that propped up spending on tourism. Cooler weather supported autumn clothing sales while artificial intelligence projects and electronics demand also buoyed sentiment. The index rose 0.6 point on the month to a seven-month high of 47.0 but it was still below the neutral line of 50, hit by rain storms in many regions and rising inflation. Consumers are also becoming more cautious about buying homes amid rising mortgage and construction costs.

The Watchers’ outlook index, which shows sentiment in two to three months, marked its first drop in six months in September, down 0.9 point at 47.4, amid uncertainty over the Mideast conflict. Rising borrowing costs and auto prices appear to be making some consumers wary of purchasing vehicles. It followed a 2.5-point rise to a six-month high of 48.3 in August. The index started the year at 50.1 before slipping to 50.0 in February and plunging to 38.7 as the Iran war triggered a spike in energy prices.

Thursday, Nov. 12
0850 JST (2350 GMT/1850 EST Wednesday, Nov. 11) The Bank of Japan releases the October corporate goods price index (CGPI).

Producer inflation in Japan is expected to remain elevated as the lingering Mideast war has kept fuel costs high but the pace of year-on-year increase may slow further in October from 6.8% in September and 7.6% in August in light of the recent decline in rice prices, which was a main cause of a surge in both producer and consumer prices in 2025. The yen is still weak after a recent pickup, leaving import costs high, although the y/y rise in the CGPI’s import price index in yen terms continued to slow 24.5% in September from 25.1 in August and 29.4% in July.

In the September report, farm produce prices marked their first drop in many months thanks to ample domestic supply of rice. At the same time, non-ferrous metal prices were still 40% above year-earlier levels and the impact of the Mideast conflict has left chemicals and plastics about 13% more expensive than a year before. Artificial intelligence projects have also boosted memory chip prices globally.

The corporate goods price index hit a recent peak of a 7.7% rise on the year in July, which was the highest since 8.4% recorded in February 2023, when upstream prices were on a gradual downtrend after having peaked at 10.6% in December 2022 in the aftermath of Russia’s invasion of Ukraine in February that year.

Thursday, Nov. 12
1030 JST (0130 GMT Thursday, Nov. 12/2030 EST Wednesday, Nov. 11) Bank of Japan board member Toichiro Asada, a former economics professor who is known hold reflationary views, speaks to business leaders in Nagasaki City, southwestern Japan. Asada joined the nine-member board in April. His appointment reflects the wishes of Prime Minister Sanae Takaichi who has voiced opposition to rate hikes in the past.

At the bank’s Sept. 17-18 meeting where the board decided to raise the target for the overnight interest rate to 1.25% from 1% in a 7 to 2 vote, Asada called for no change, arguing that the core CPI inflation (excluding fresh food) had been below the bank’s 2% target and that the current economic conditions were not necessarily strong. He also dissented at the June 15-16 meeting at which the board voted 7 to 1 (the governor was absent for medical treatment) to lift the policy rate to 1.0% from 0.75%.

Thursday, Nov. 12
1400 JST (0500 GMT/2030 EST Thursday, Nov. 12) The BOJ’s Asada holds a news conference in Nagasaki.

Monday, Nov. 16
0850 JST (2350 GMT/1850 EST Sunday, Nov. 15) The Cabinet Office releases preliminary July-September GDP.

Mace News median: +0.1% q/q (range -0.1% to +0.4%) vs. Q2 revised +0.4%; +0.3% annualized (range -0.3% to +1.5%) vs. Q2 revised +1.4%; +1.2% y/y (range +1.1% to +1.5%) vs. Q2 revised +0.9%

Japan’s economy is forecast to post its fourth straight quarterly growth in the July-September quarter but at a much slower pace than in April-June as stormy weather and rising costs dampened private consumption and net exports slipped back, partly offsetting a rebound in business investment. Public works spending continued to fall amid fading effects of the fiscal 2025 supplementary budget and lingering labor shortages.

The gross domestic product is forecast to be nearly flat, up just 0.1% on quarter, or an annualized 0.3%, slowing from a 0.4% increase (1.4% annualized) in Q2. Three of the 10 economists in a Mace News survey expect the Q3 GDP contracted slightly.

The median economist forecast showed all of the Q3 growth is seen coming from domestic demand (added 0.4 percentage point to GDP) while net exports slumped (trimmed GDP by 0.4 point) in a reverse mirror image of a rise in Q2, when imports plunged due to squeezed crude oil shipments from the war-hit Mideast Gulf. The government helped boost energy imports from the United States and other countries in Q3. Exports continued to show some resilience amid global projects to develop artificial intelligence.

Private consumption, which accounts for about 55% of the total domestic output, is seen down 0.2% on quarter, marking its first drop in 10 quarters after being flat in Q2. It would be a second straight decline if the figure for the previous quarter is revised down to show a slight drop as some economists have predicted.

Business investment in equipment and software is forecast to have rebounded 1.5% for the first rise in three quarters after falling 0.9% previously, reflecting strong global demand for memory chips and domestic needs to upgrade operations amid widespread labor shortages. Public works spending is expected to mark its second straight fall, down 2.0%, following a 0.5% dip in the previous quarter.

Details:

Key components are quarter-on-quarter percentage changes except for domestic demand, private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are shown in parentheses:

GDP q/q: +0.1% (+0.4%); 4th straight rise
GDP annualized: +0.3% (+1.4%); 4th straight rise
GDP y/y: +1.2% (+0.9%); 9th straight rise
Domestic demand: +0.4 point (-0.1 point); 1st rise in 2 qtrs
Private consumption: -0.2% (+0.0%); 1st drop in 10 qtrs
Business investment: +1.5% (-0.9%); 1st rise in 3 qtrs
Public investment: -2.0% (-0.5%); 2nd straight drop
Private inventories: +0.1 point (+0.3 point); 2nd straight rise
Net exports (external demand): -0.4 point (+0.5 point), 1st drop in 4 qtrs

Monday, Nov. 16

1300 JST (0400 GMT Monday, Nov. 16/2300 EST Sunday, Nov. 15) Bank of Japan board member Hajime Takata speaks to business leaders in Tokushima City in western Japan.

Wednesday, Nov. 18
0850 JST (2350 GMT/1850 EST Tuesday, Nov. 17) The Ministry of Finance releases October trade.

Japanese export values are expected to post a 14th consecutive increase and an eight straight double-digit percentage gain in October following a revised 16.5% rise in September. The auto industry has weathered the initial impact of stiff U.S. tariffs slapped last year and global demand for memory chips and non-ferrous metals has been solid.

But the trade balance is likely to record a sixth straight deficit as global energy costs remain high. The shortfall narrowed to ¥556.48 billion in September from ¥1,111.93 billion (¥1.11 trillion) in August. Import values are set to mark their ninth straight rise but the pace of increase slowed to 18.9% in September from 28.0% in August. The September increase was driven by crude oil, memory chips and liquefied natural gas.

Thursday,  Nov. 19
0850 JST (2350 GMT/1850 EST Wednesday, Nov. 18) The Cabinet Office releases September, Q3 machinery orders, the outlook for October-December.

Japan’s core machinery orders, a key leading indicator of business investment in equipment and software, may take a breather after posting a solid 5.2% rebound on the month in August and slipping 3.7% in July. The general pickup trend is in place, backed by strong global demand for memory chips and domestic needs to upgrade operations amid widespread labor shortages. The August increase was led by a rebound in orders from non-ferrous metal producers, telecommunications service providers and the wholesale/retail category following a decline in those industries in the previous month.

The Cabinet Office is likely to maintain its assessment that machinery orders are “showing signs of a pickup.”

In the June report, the Cabinet Office projected that core orders would rise 4.9% on quarter in the July-September period for a fourth straight increase.

Thursday, Nov. 19
1600 JST (0700 GMT/0200 EST Thursday, Nov. 19) The Bank of Japan releases the real export and import indexes for October based on the MOF’s trade data.

The real export index slipped a seasonally adjusted 0.2% on the month in September after falling 0.8% in August and rising 0.6% in July. It rebounded 1.0% in the July-September quarter on the April-June period, when it fell 1.3% from the previous quarter.

Friday, Nov. 20
0830 JST (2330 GMT/1830 EST Thursday, Nov. 19) The Ministry of Internal Affairs and Communications releases October CPI.

Consumer inflation is expected to stay high in October after accelerating to just above the Bank of Japan’s 2% price stability target in September when the metropolitan government’s water subsidies for the peak summer months ended for some households and the price-cutting base-year effect of free daycare services waned.

Nationwide subsidies for fuels and utilities (electricity and natural gas) have limited the upward pressure on overall energy costs but households are expected to be hit by further markups in groceries and other necessities in coming months.

High energy, import and labor costs are forcing firms in many sectors to raise prices. The Mideast conflict lingers on while the yen remains under year-earlier levels, eroding Japan’s purchasing power.