–Tokyo CPI to Show Inflation Trending Lower Below BOJ’s 2% Target, Factory Output Set to Rebound While Retail Sales Remain Sluggish
By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week. Prime Minister Sanae Takaichi has been sworn in after being re-elected in the Diet where lawmakers will start debating the fiscal 2026 budget this week.
Since Takaichi’s conservative Liberal Democratic Party scored a supermajority in the House of Representatives in the Feb. 8 general election, the budget is expected to clear the parliament with no major hurdle by mid-April, with a possible stop-gap budget to keep the government running after the new fiscal year begins on April 1. The snap election called by Takaichi in January delayed the start of the budget debate by about a month.
On top of her to-do list is boosting Japan’s economic security by reducing heavy reliance on China, the world’s largest supplier of rare earth, crucial metals used in motors and magnets to run home appliances, computers, electric vehicles, medical devices and military equipment.
Since Beijing’s rare earth supply cut in 2010 over a territorial dispute with Tokyo, both the Japanese government and companies have diversified rare earth supply sources to include Australia and Vietnam but China still has a dominant 63% share for Japan, compared to 90% in 2010 and 100% in 2005.
To alleviate the impact of China’s decision last month to curb its exports of rare earths to Japan over a diplomatic feud over Taiwan, Takaichi is seeking to maintain a strategic alliance with U.S. President Donald Trump despite the unpredictable nature of his policy decisions, particularly on trade issues. The two leaders are scheduled to meet at the White House on March 19 following their meeting in Tokyo in October.
On the data front, industrial production is forecast to have rebounded in January when exports of Japanese goods increased ahead of the Feb. 17 Lunar New Year. But retail sales remain weak as consumers are cautious about spending in the face of falling real wages and lower fuel prices are pushing down overall sales.
Inflation has been slowing the past several months and this trend is expected to continue in all three key CPI measures in February. The government abolished a decades-old gasoline surcharge at the end of December whose price-cutting impact emerged in January. This factor will continue to have a base effect of pushing down inflation throughout 2026.
– Monday, Feb. 23
– Japanese markets are closed for the Emperor’s Birthday public holiday.
– Tuesday, Feb. 24
1300 JST (0400 GMT Tuesday, Feb. 24/2300 EST Monday, Feb. 23) Prime Minister Takaichi and lawmakers from the ruling and opposition parties debate the fiscal 2026 budget at a plenary session of the House of Representatives (lower house) until Feb. 25 following Takaichi’s policy speech delivered last week.
– Tuesday, Feb. 24
1400 JST (0500 GMT/0000 EST Tuesday, Feb. 24) The Bank of Japan releases the details of the real trade indexes for January. Real exports rebounded 8.6% on the month in January after falling 3.9% in December and 6.7% in November.
– Wednesday, Feb. 25
TBA – Prime Minister Takaichi and lawmakers from the ruling and opposition parties debate the fiscal 2026 budget at a plenary session of the House of Councillors (upper house) until Feb. 26.
– Wednesday, Feb. 25
TBA – The Cabinet Office releases the government’s monthly economic report. It is expected to repeat its recent statement. Last month, the government maintained its long-held view that the wobbly but resilient domestic economy was likely to remain on a modest recovery track, counting on continued wage hikes at a solid pace amid labor shortages and pointing to a pickup in consumer sentiment in light of easing inflation.
Japan’s economy is “recovering at a moderate pace, although the effects of the U.S. trade policy are seen mainly in the auto industry,” it said in the January report. The official assessment was last upgraded in August 2024, following a downgrade in February that year.
– Thursday, Feb. 26
1030 JST (0130 GMT Thursday, Feb. 26/2030 EST Wednesday, Feb. 25) Bank of Japan board member Hajime Takata, formerly with Mizuho Securities, speaks to business leaders in Kyoto, western Japan.
– Thursday, Feb. 26
TBA – BOJ board member Takata holds a news conference in Kyoto in the afternoon, usually at 1400 JST (0500 GMT/0000 EST).
– Friday, Feb. 27
0830 JST (2330 GMT/1830 EST Thursday, Feb. 26) The Ministry of Internal Affairs and Communications releases February Tokyo CPI.
Mace News median: total CPI +1.4% y/y (range: +1.2% to +1.5%) vs. Jan +1.5%; core CPI (ex-fresh food) +1.7% (range: +1.6% to +1.8%) vs. Jan +2.0%; core-core CPI (ex-fresh food, energy) +2.3% (range: +2.3% to +2.4%) vs. Jan +2.4%
Consumer inflation in Tokyo, a leading indicator of the national trend, is expected to continue moderating in all three key measures in February as energy prices were pulled down by renewed subsidies for electricity and natural gas use in the first three months of the year during the winter heating season. Energy costs were already down in January after the government scrapped a decades-old gasoline surcharge at the end of December.
Processed food price markups continue to ease now that domestic rice supply shortages have been resolved. The prices for fresh vegetables and fruits are down after surging in early 2025 on poor crops of 2024.
The core measure (excluding fresh food) is forecast to post a nearly two-year low of 1.7% increase on the year after the annual rate decelerated to 2.0% in January from 2.3% in December. The annual rate of the total CPI is expected to stay at the lowest in about four years, slowing to 1.4% after having plunged to 1.5% from 2.0% in December. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by energy subsidies and tax code changes, is seen easing to 2.3% from 2.4%.
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.”
– Friday, Feb. 27
0850 JST (2350 GMT/1850 EST Thursday, Feb. 26) The Ministry of Economy, Trade and Industry releases preliminary January industrial production, the outlook for February, March.
Mace News median: +5.3% m/m (range: +4.0% to +7.0%) vs. Dec. -0.1%; +5.2% y/y (range: +4.2% to +7.2%) vs. Dec. +2.6%
The expected sharp increase reflects 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, as seen in January trade data released last week.
The monthly survey by the Ministry of Economy, Trade and Industry released last month indicated that output would surge 7.2% on the month in January, led by a rebound in transport equipment, before falling back 4.3% in February due to a pullback in autos.
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.
– Friday, Feb. 27
0850 JST (2350 GMT/1850 EST Thursday, Feb. 26) The Ministry of Economy, Trade and Industry releases preliminary January retail sales.
Mace News median: +0.1% y/y (range: -1.2% to +2.5%) vs. Dec -0.9%; +2.1% m/m (range: +1.6% to +3.0%) vs. Dec -2.0%
Japanese retail sales are forecast to remain sluggish in January, up just 0.1% on the year, as fuel prices fell at a faster pace after the government scrapped a gasoline surcharge at the end of 2025 and department store sales have been hit by Beijing’s call on Chinese tourists to boycott Japan over bilateral diplomatic rows. It would follow an unexpected 0.9% drop in December in the face of falling fuel costs and a slip in clothing sales.
The Ministry of Economy, Trade and Industry is expected to maintain its assessment that retail sales are “taking one step forward, one step back.”