By Max Sato
(MaceNews) – Here are the key Japanese economic events for the coming week.
The world trade uncertainty has been reduced somewhat by accords between Washington and some U.S. allies, except for Canada, but President Trump’s erratic policymaking is leaving firms wary of making plans.
Trump tariffs are taking their toll on Japanese exports and production, the former of which was confirmed in the July trade data released last week and the impact on the latter is likely to be seen in preliminary industrial output for the month due Friday. Lower inbound spending, while easing pressures on inflation, has depressed department store sales, and thus overall retail sales. Front-run purchases of air conditioners (a must-have in a near tropical Japan) also dented sales during the peak heat wave.
Among other key data due Friday, the unemployment rate is set to remain low and stable at 2.5% in July while the August data for the Tokyo’s 23-ward central areas, leading the national trend, is expected to confirm easing but still elevated inflation is eroding consumer purchasing power. The CPI is seen down at 2.6% in total and core but the prices for essential food are rising at a much faster pace.
However, businesses and households have shown some resilience in the initial reading of the April-June GDP released last week. Japan’s wobbly economy, which contracted for the third consecutive quarter in January-March 2024, showed a higher-than-expected 0.3% rise on quarter, or an annualized 1.0%, for the fifth straight quarterly economic growth. External demand turned out to be stronger than forecast with a combination of modest export growth and weak imports reflecting sluggish domestic demand.
It followed a slight 0.1% rise q/q (+0.6% annualized) in January-March, which was revised up from the economy’s first contraction in four quarters with a slight 0.04% dip (-0.2% annualized).
The latest GDP data that contains many revisions to recent figures showed the economy contracted for the third consecutive quarter in January-March 2024, when it fell 1.1% at an annualized pace following a slight 0.2% drop in October-December 2023 and a 4.1% plunge in the prior quarter.
Looking ahead, Japan’s economic performance in the July-September quarter is expected to remain sluggish as consumers stay frugal amid falling real wages, external demand is marred by trade rows and some firms are wary of implementing their solid capex plans.
– Monday, Aug. 25
1400 JST (0500 GMT/0100 EDT the same day) The Bank of Japan releases the details of its real export index for July, which fell 4.3% on the month after rising 3.3% in June and being flat in May.
– Monday, Aug. 25
1400 JST (0500 GMT/0100 EDT the same day) The Japan Department Stores Association releases July sales. Preliminary data from major chains pointed to a sixth straight year-on-year decline in nationwide data. The relentless heat wave boosted demand for cold drinks and snacks but extremely hot and humid conditions that claimed some lives and sent many to hospitals could have prompted people to stay home or indoors.
– Wednesday, Aug. 27
TBA: Expected to be around 1730 JST (0830 GMT/0430 EDT the same day) The Cabinet Office releases the government’s monthly economic report for August. It is likely to repeat its overall assessment provided last month.
In its July report, the government looked at the bright side of trade rows in the wake of a bilateral deal with the Trump administration, sticking to its long-held conviction that the economy is expected stay on a “modest recovery” track but also warned that uncertainty remains.
Tokyo maintained its overview with a slightly brighter undertone, saying the economy was “recovering at a moderate pace, although the effects of the U.S. trade policy are seen in some areas.” Previously, the economy was “recovering at a moderate pace but confronted by the uncertainty arising from the U.S. trade policy.”
– Thursday, Aug. 28
1030 JST (0130 GMT the same day/2130 EDT Wednesday, Aug. 27) Bank of Japan board member Junko Nakagawa delivers a speech to business leaders in Yamaguchi City, western Japan on the latest economic conditions and the bank’s policy stance ahead of the board’s next policy-setting meeting on Sept. 18-19.
1400 JST (0500 GMT/0100 EDT the same day) Nakagawa, formerly a Nomura Securities executive, holds a news conference in Yamaguchi. Her five-year term ends on June 29, 2026.
At its last meeting on July 30-31, the bank’s nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5% for the fourth straight meeting after hiking it by 25 basis points (0.25 percentage point) in January amid uncertainty over trade rows.
The board said the bank will continue raising rates if growth and inflation evolve in line with its medium-term outlook but it is still in the process of normalizing its monetary policy stance from years of keeping short-term rates near zero percent.
In its quarterly Outlook Report released at the same time, the board left its growth forecasts little changed for fiscal years 2025, 2026 and 2027 (ending in March 2028) while revising up its inflation outlook sharply for the current fiscal year and seeing tame price rises in fiscal 2025 and 2026 as projected in the April report.
– Friday, Aug. 29
0830 JST (2330 GMT/1930 EDT Thursday, Aug. 28) The Ministry of Internal Affairs and Communications releases August Tokyo CPI.
Mace News median: total CPI +2.6% y/y (range: +2.3% to +2.8%) vs. July +2.9%; core CPI (ex-fresh food) +2.6% (range: +2.2% to +2.8%) vs. July +2.9%; core-core CPI (ex-fresh food, energy) +3.1% (range: +2.8% to +3.1%) vs. July +3.1%
The year-on-year rise in the total CPI is also seen decelerating to 2.6% after slowing to 2.9% in July from 3.1% in June, showing similar patterns as in the core reading. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by fluctuations in gasoline and heating oil prices, is expected to remain notably sticker at 3.1% after staying at 3.1% in July and easing to the level in June from 3.3% in May.
Lower inbound spending amid the stronger yen vs. its weakness seen last year is also helping ease upward pressures on consumer prices. Energy prices are expected to post a year-on-year decline for the second straight month following many months of gains.
On the upside, elevated processed food prices continue to hurt households. Serious domestic rice supply shortages have eased but regular rice prices in Tokyo’s 23-ward areas were still up 81.2% on the year in July, only slightly slower than 89.2% in June and 93.2% in May. The deceleration pace in August is also expected to be gradual.
The current high inflation rate is not backed by domestic demand (wage-heavy services price hikes lag behind goods price gains) but largely pushed up by higher import costs. This means wage growth is not catching up with inflation and thus that underlying inflation, estimated by the Bank of Japan to be around 1.5%, is still below the bank’s 2% price stability target in the long run.
But the Bank of Japan is in the process of normalizing its policy stance after a decade-long large-scale easing period through 2022 and is set to continue gradually raising the overnight interest rate from the current level of 0.5%. Officials argue that real borrowing costs remain “significantly negative” because the BOJ has been cautious about raising rates even when inflation expectations are rising moderately.
– Friday, Aug. 29
0830 JST (2330 GMT/1930 EDT Thursday, Aug. 28) The Ministry of Internal Affairs and Communications releases July jobs.
Mace News median: 2.5% (range: 2.4% to 2.5%) vs. June 2.5%, May 2.5%, Apr 2.5%, Mar 2.5%, Feb 2.4%, Jan 2.5%
Japanese payrolls are expected to post their 36th straight rise on year in July amid chronic shortages of construction workers, truck drivers and system engineers among many other categories.
The seasonally adjusted unemployment rate is forecast to remain low and stable at 2.5% after staying at the rate in the previous four months and edging down to 2.4% in February from 2.5% in January. The 2.4% rate in September 2024 was the lowest in more than four years since 2.4% in February 2020.
The government continues to describe employment conditions as “showing signs of improvement” in its latest monthly economic report but real wages fell for the sixth straight month in June, down 1.3% on the year, in the face of rising costs of living while nominal wages gained a modest 2.5%.
Both government and Bank of Japan policymakers are watching whether high wage hikes at large firms are filtering through to small businesses.
– Friday, Aug. 29
0850 JST (2350 GMT/1950 EDT Thursday, Aug. 28) The Ministry of Economy, Trade and Industry releases July industrial production, outlook August, September.
Mace News median: -1.5% m/m (range: -2.3% to -0.3%) vs. June revised up to +2.1% from +1.7%; -0.7% y/y (range: -5.3% to +0.4%) vs. June revised up to +4.4% from +4.0%
Japan’s industrial production is forecast to slip back 1.5% on the month in July after marking its first rise in three months in June with a solid 2.1% gain (revised up from +1.7%) as the uncertainty over both global and domestic demand lingers even in the wake of trade deals between Tokyo and Washington, news of which appeared to come in a little too late for firms to digest.
Trade data showed Japanese export values posted their third straight year-on-year drop in July while export volumes were up for the fourth month in a row, reflecting automakers’ pre-emptive strike to slash the prices for their U.S. customers to cover higher import costs triggered by stiff tariffs by President Trump, and thus to protect their long-held leading market share.
Tokyo and Washington have agreed to lower the “reciprocal” tariff rate to 15% on most U.S. imports of Japanese goods including automobiles and auto parts (50% on iron and steel), down from President Trump’s original plan to slap 25% duties on Japan, but the figure is still much higher than the 2.5% rate imposed by the United States before the second Trump administration.
The monthly survey by the Ministry of Economy, Trade and Industry released last month indicated that output would output would slip 1.0% in July before rising 0.8% in August, led by production machinery as well as iron/steel and non-ferrous metals.
From a year earlier, factory output is expected to have dipped 0.7% after marking a solid 4.0% rise in June and falling 2.4% in May, which was the first drop in five months.
Last month, the ministry maintained its assessment, saying industrial output is “taking one step forward and one step back.” The last change was made in the July 2024 report, when it upgraded its view.
– Friday, Aug. 29
0850 JST (2350 GMT/1950 EDT Thursday, Aug. 28) The Ministry of Economy, Trade and Industry releases July retail sales.
Mace News median: +1.8% y/y (range: +1.0% to +2.6%) vs. June revised down to +1.9 from +2.0%; +0.1% m/m (range: -0.6% to +0.5%) vs. June revised down to +0.9% from +1.0%
Japanese retail sales are forecast to remain sluggish, rising at a modest pace of 1.8% on the year in July, after a 1.9% gain in each of the previous two months and losing steam from +3.5% in April, as consumers had already scrambled to replace or repair their existing air conditioners before June in anticipation of life-threatening heat waves and typhoons. Government subsidies have cut fuel prices in recent months, exerting downward pressures on retail sales while demand for drugs and cosmetics stays intact.
On the month, retail sales are expected to be flat, up just 0.1% on a seasonally adjusted basis, after slipping 0.6% in May and rising 0.7% in April.
Last month, the Ministry of Economy, Trade and Industry maintained its assessment after downgrading it for the first time in eight months in the prior month, saying retail sales were “taking one step forward and one step back,” instead of being “on a gradual pickup trend.”
Department store sales suffered a sixth straight year-on-year decline in July, hit by lower inbound spending amid a firmer yen and stricter duty-free shopping rules (Industry data due Monday will confirm this and provide more details). The yen firmed to an average Y146.71 to the dollar in July from Y158.06 a year earlier.
Looking back the yen slumped to its weakest level in 38 years in July 2024, reflecting a widening gap in interest rates between Japan and United States. The Bank of Japan’s normalization process toward higher rates still remains at a snail’s pace while the Federal Reserve has been cautious about cutting interests amid sticky inflation.
New passenger car sales units slipped 4.4% in July, marking their first drop in seven months, hit by the failure to produce new models at debt-ridden Nissan Motor, down for the 10th month in a row, and at Honda Motor, down for the fourth straight month. The proposed marriage between the struggling two carmakers broke down this year as Honda tried to swallow Nissan, instead of creating a holding company and placing them as equal partners.
Vehicle sales in the retail sales data are provided only in values, so they could depict a completely different picture than what industry data had already shown (if lower priced light vehicles were more popular than sedans or SUVs, METI’s retail sales data could record a drop on year). Demand for vehicles in general has recovered gradually after last year’s production suspension by the Toyota Motor group over safety test scandals but sluggish Chinese consumption continues