By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week. Lawmakers are set to approve a stop-gap budget to ensure uninterrupted social security payments and other essential spending while undergoing the final process of debating and enacting the full-year budget for fiscal 2026 starting April 1.
Just as many households and businesses thought elevated inflation for food, energy and other essential goods was easing, they got hit by a spike in global crude oil prices due to a Mideast conflict that has shown no signs of ending soon.
Prime Minister Sanae Takaichi is using remaining 2022 special funds to cap the prices of gasoline and diesel while reviving subsidies to lower electricity bills during the peak heating season. Record high government spending in the budget for the upcoming fiscal year is also designed to boost industrial competitiveness and better prepare the economy for external shocks.
On the monetary policy front, Bank of Japan Governor Kazuo Ueda is leading the gradual process to lift short-term interest rates toward a more neutral level of above 1% as part of unwinding of the bank’s large-scale easing in the past.
As Ueda told a post-meeting news conference on March 19, the BOJ has created new “core” consumer price indexes that now exclude “institutional factors.” The BOJ has been releasing its own core measures: the trimmed mean, the weighted median, the mode and the diffusion index of increasing/decreasing items. The institutional factors are: changes in the sales tax rate, currently 10%; free education; markdowns in mobile phone charges in 2021; travel subsidy programs; and government measures to lower energy prices.
The BOJ’s new “core” (excluding fresh food and institutional factors) rose 2.2% on the year in February, easing from 2.3% in January and 2.7% in the previous two months. That is notably higher than the annual rate of the widely used core CPI (excluding fresh food) that has slowed to 1.6% in February from 2.0% in January and 2.4% in December and 3.0% in the previous two months.
Inflation measured by the government’s “core-core” CPI (excluding fresh food and energy) moderated to 2.5% in February from 2.6% in January and 2.9% in December. When the effects of institutional factors are stripped off from that indicator, the annual rate is slightly higher at 2.7% in February vs. 2.8% in January and 3.1% in December.
If BOJ board members attach more importance to those narrower CPI measures, they could argue that the trend inflation is higher than what the CPI data released by the government suggests, which in turn could be used to justify their move to raise the policy rate further.
The bank will update the board’s medium-term inflation and growth forecasts as well as risk analysis in its quarterly Outlook Report to be issued after the next policy meeting on April 27-28. Many economists expect the BOJ to hold interest rates for now while confirming the effects of higher costs of energy and commodities.
This week’s data will show consumer inflation in the capital, the leading indicator for the national trend, remains tame in two of the three key measures in March now that goods prices are showing a slower pace of markups and energy costs are falling. A mid-month spike in the national average regular gasoline price to a record high will be gradually contained by the special funds for fuels.
Unemployment is set to stay low and steady in February amid widespread labor shortages. Payrolls may pick up after unexpectedly dropped from year-earlier levels in January, which was partly due to an increase in the number of people who quit their jobs to look for better positions and those who join the market, looking for work.
Industrial production is expected to post slip in February following a jump in January on a pickup in the tariff-hit auto industry and pre-Lunar New Year holiday rush exports to Asian countries. Retail sales remain sluggish as spending by visitors from overseas has petered out and has been made worse by the absence of cash-rich Chinese tourists who have been told by Beijing to skip Japan amid one-and-off bilateral diplomatic rows. Falling fuel prices have also dampened retail sales values.
– Monday, March 30
0850 JST (2350 GMT/1950 EDT Sunday, March 29) The Bank of Japan releases the summary of opinions from its March 18-19 policy meeting at which the nine-member board decided in an 8 to 1 vote to leave the target for the overnight interest at 0.75% following no change in policy by an 8 to 1 vote in January. In December, the bank raised the key rate by 25 basis points (0.25 percentage point) to a 30-year high in a unanimous vote after standing pat the previous five meetings.
The board repeated that the bank will continue raising rates if growth and inflation evolve in line with its medium-term outlook, noting that real interest rates are at “significantly low levels.” The board still believes that a positive cycle from income to spending will gradually intensify, backed by the government’s economic stimulus packages and accommodative financial conditions resulting from the BOJ’s large-scale easing in the past.
Board member Hajime Takata, formerly with Mizuho Securities, called for a rate increase to 1.0% for the second meeting in a row, arguing that the bank’s 2% inflation target has been “largely achieved” and that Japan’s inflation risks are “skewed to the upside due to second-round effects of price rises stemming from overseas developments.” Takata and his colleague Naoki Tamura, who came from the Sumitomo Mitsui banking group, called for an earlier rate hike last year.
The board repeated its projection from its quarterly Outlook Report released after the January meeting that in the second half of its projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation and the rate of increase in the core CPI (excluding fresh food) should increase gradually and will be “at a level that is generally consistent with the price stability target.”
The two known hawks, Takata and Tamura, argued against this outlook. Takata repeated his view that both underlying inflation and actual price rises in the consumer price index had largely reached the BOJ’s 2% stability target. For his part, Tamura expects underlying inflation to reach the levels consistent with the 2% target at the April start of fiscal 2026, much earlier than the board’s majority projection that has been held since April 2025.
– Monday, March 30
Both chambers of parliament are expected to approve the Takaichi administration’s stop-gap budget worth ¥8.6 trillion which is designed to cover the first 11 days of fiscal 2026 starting April 1. It would allow the government to provide uninterrupted social security payments and transfers to prefectures.
Upper house lawmakers will continue debating the fiscal 2026 budget totaling a record ¥122.3 trillion. It has cleared the lower house where the ruling conservative Liberal Democratic Party has a super majority but the opposition-dominated upper house needs more time to discuss the full-year budget. Feb. 8 general elections delayed the start of the annual 150-day Diet session by about a month.
– Tuesday, March 31
Junichiro Asada, 71, who was an economics professor at Chuo University in Tokyo, joins the nine-member policy board at the Bank of Japan. He will replace Asahi Noguchi, 67, formerly with Senshu University, whose five-year term ends on March 31. Asada is one of the two academics nominated by the government in February who have a possible reflationary bias. Aoyama Gakuin University professor Ayano Sato, 57, who teaches international finances and macroeconomics, will fill the gap to be left open by Junko Nakagawa, a former Nomura Securities executive, who is set to retire on June 29.
The nominations of the two have been approved by the Diet and they are ready to serve but their appointments are unlikely to shift the course of policy normalization under Governor Ueda who took office in April 2023 and embarked on raising rates in March 2024, particularly the board has two known hawks who have called for an earlier additional rate hike.
– Tuesday, March 31
0830 JST (2330 GMT/1930 EDT Monday, March 30) The Ministry of Internal Affairs and Communications releases March, fiscal 2025 average Tokyo CPI.
Mace News median: total CPI +1.6% y/y (range: +1.4% to +1.6%) vs. Feb +1.6%; core CPI (ex-fresh food) +1.8% (range: +1.6% to +1.9%) vs. Feb +1.8%; core-core CPI (ex-fresh food, energy) +2.4% (range: +2.2% to +2.5%) vs. Feb +2.5%
Consumer inflation in Tokyo, a leading indicator of the national trend, is expected to remain tame below the Bank of Japan’s 2% target in two of the three key measures in March as energy prices were capped by subsidies aimed at lowering electricity bills during the peak heating season. Processed food price gains have been slowing after domestic rice supply shortages were resolved last year.
The core measure (excluding fresh food) is forecast to have risen 1.8% on year after the annual rate slid to a 16-month low of 1.8% in February from 2.0% in January. The annual rate of the total CPI is also seen steady at 1.6% after edging up to 1.6% in February from 1.5% in January, which was the lowest in about four years. The year-on-year increase in the core-core CPI (excluding fresh food and energy) is projected to moderate slightly to 2.4% after rising to 2.5% in February from 2.4% the prior month.
Two of the key inflation measures are now below the Bank of Japan’s 2% price stability target but that was already projected by the bank in October as the rice price markups had eased after a spike in early 2025.
The bank repeated its quarterly Outlook Report in January that in the second half of its projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation and the rate of increase in the core CPI should increase gradually and will be “at a level that is generally consistent with the price stability target.”
– Tuesday, March 31
0830 JST (2330 GMT/1930 EDT Monday, March 30) The Ministry of Internal Affairs and Communications releases the February unemployment rate.
Mace News median: 2.7% (range: 2.6% to 2.7%) vs. 2.7% in Jan; 2.6% from Aug to Dec, over 5-year low of 2.3% in July, 2.5% from March to June
Japan’s jobless rate stood low and steady at 2.5% in 2025, half of the 5.2% average among the Group of Seven leading economies. The rate in the United States was relatively low at 4.3% that year, up from 4.0% previously, while that in France, the highest in the G7, climbed to 7.7% from 7.4%.
Payrolls may bounce back in February after the total number of employed unexpectedly posted its first year-on-year drop in 42 months in January. Large numbers of self-employed and their family staff wrapped up their business and firms continued shedding non-regular positions while adding more regular jobs, the latter of which is a good omen for overall economic health.
The slight increase in overall unemployment in January was caused by higher jobs cuts and retirements compared to a year earlier. More people also quit to seek other openings, a sign that economic conditions are relatively favourable and firms are encouraging higher mobility. The number of people who began looking work and thus were counted as jobless continue rising in January but at a slower pace.
Manufacturers slashed their payrolls in January, offsetting continued solid gains at construction and telecommunications firms. Hover, both the manufacturing and wholesale/retail sectors remain the main employers, each holding more than 10 million workers on their payrolls and together accounting for 30% of the total number of the employed.
The government continues to describe employment conditions as “showing signs of improvement” in its latest monthly economic report for March, unchanged since the last upgrade in June 2023.
– Tuesday, March 31
0850 JST (2350 GMT/1950 EDT Monday, March 30) The Ministry of Economy, Trade and Industry releases preliminary February industrial production, the outlook for March, April.
Mace News median: -2.0% m/m (range: -3.5% to -0.5%) vs. Jan revised to +4.3% from +2.2%; +0.4% y/y (range: -1.2% to +1.9%) vs. Jan revised to +0.7% from +2.3%
Japan’s industrial production is projected to post its first month-on-month drop in three months in February, down 2.0%, after an upwardly revised 4.3% jump in January (+2.2% in the initial reading) and a 0.6% rise (revised up from being flat) in December. The increase in January was driven by a rebound in the output of passenger cars. It also reflected rush exports of computer chips, non-ferrous metals and plastics ahead of the holidays in China and some other Asian countries around the Feb. 17 Lunar New Year.
The monthly survey by the Ministry of Economy, Trade and Industry released last month (before the METI’s annual update to seasonal adjustments) indicated that output would slip back 1.9% on the month in February, led by computer chips and metal products, before dipping a further 2.6% in March due to a pullback in electric and information equipment (including radars) as well as general machinery.
Last month, the ministry repeated that industrial output was “taking one step forward and one step back.” The last change was made in the July 2024 report, when it upgraded its view.
– Tuesday, March 31
0850 JST (2350 GMT/1950 EDT Monday, March 30) The Ministry of Economy, Trade and Industry releases preliminary February retail sales.
Mace News median: +0.4% y/y (range: -1.0% to +0.8%) vs. Jan +1.8%; -1.2% m/m (range: -1.6% to -0.3%) vs. Jan revised to +3.0% from +4.1%
Japanese retail sales are forecast to post a second straight year-on-year increase in February but the pace of growth is seen slowing to just 0.4% from 1.8% in January, when falling temperatures boosted demand for heat pumps and new vehicle sales picked up. February sales are propped up by spring clothing amid milder weather, which is partly offset by falling fuel prices after the government scrapped decades-old surcharges.
The Ministry of Economy, Trade and Industry is expected to maintain its assessment after upgrading it last month, saying retail sales are “on a gradual uptrend.”
Industry data released last week showed department store sales rose 1.6% on year in February after rebounding 2.3% in January, led by domestic demand for spring clothing as temperatures climbed in the second half of the month. There remains strong demand for high-end watches and jewelries on the back of booming stock markets before they were hit by a spike in crude oil prices caused by the Iran war that broke out in late February.
On the downside, sales to visitors from overseas marked their fourth straight year-on-year decline as Chinese tourists continued boycotting Japan over bilateral diplomatic rows, although visitors from Taiwan, Thailand and Malaysia somehow picked up the slack.
– Wednesday, April 1
0850 JST (2350 GMT/1950 EDT Tuesday, March 31) The Bank of Japan releases the quarterly Tankan business survey for March.
Mace News medians: large mfg sentiment +17 vs. +16 in Dec (revised from +15); large non-mfg +34 vs. +36 in Dec (revised from +34); small mfg +7 vs. +7 in Dec (revised from +6); small non-mfg +14 vs. +17 in Dec (revised from +15)
FY2025 large firm capex plans +9.7% y/y (range: +9.0% to +11.4%) vs. +12.2% in Dec (revised from +12.6%); FY2025 small firm capex plans -0.6% (range: -2.9% to +4.4%) vs. -2.7% in Dec (revised from +0.1%)
FY2026 large firm capex plans +2.9% y/y (range: +1.7% to +8.1%); FY2026 small firm capex plans -8.6% (range: -14.6% to -5.4%), both first estimates
The Bank of Japan’s quarterly Tankan business sentiment survey is expected to show a slight improvement among large manufacturers in the March quarter while the recent plunge in the number of Chinese tourists amid bilateral diplomatic rows is seen weighing on sentiment among both large and small non-manufacturers.
Geopolitical uncertainties in the Middle East triggered by U.S. and Israeli attacks on Iran in late February appear to have had only a limited immediate impact on Japanese corporate sentiment. Still, concerns about the outlook are intensifying, prompting firms to remain cautious on capital spending as volatile global oil prices and rising domestic energy costs add to uncertainty.
Against this backdrop, the March Tankan diffusion index for large manufacturers is projected at 17, edging up from a revised 16, previously 15, in December and marking a fourth straight quarterly increase. The index for small manufacturers is expected to be unchanged at 7, compared with a revised 7, previously 6.
Sentiment among large manufacturing firms is expected to be supported by continued demand for automation amid labor shortages, as well as government-backed digital transformation and decarbonization initiatives.
For service providers, the Japan-China feud over Taiwan is hurting hotels and restaurants. The index for large non-manufacturers is seen slipping to 34 in March from a revised 36 (previously 34) in December, while sentiment among small non-manufacturers is forecast to fall for the first time in two quarters to 14, after the December reading was revised to 17 from 15.
The Bank of Japan revised the December figures earlier this month after expanding the number of surveyed firms.
Capital expenditure plans for fiscal 2026 starting on April 1 are expected to get off to a weaker start amid the Iran war, strained Japan-China relations and rising domestic interest rates.
Large firms are expected to scale back their capital investment plans for fiscal 2025, with combined capex forecast to rise 9.7% on the year in the March Tankan, slowing from a revised 12.2% increase in December (previously 12.6%).
Smaller firms are also seen trimming their investment plans, with fiscal 2025 capex projected to fall 0.6% on the year, compared with a revised 2.7% decline in December (previously a 0.1% rise).
For fiscal 2026, large firms are expected to post a more moderate increase in capital spending, with plans seen rising 2.9% on the year, suggesting a cautious start to the new fiscal year. Smaller firms are forecast to cut investment more sharply, with capex plans projected to fall 8.6% on the year.