–December Factory Output to Show Slight Dip but Solid Q4, Sign for GDP Rebound; January Tokyo CPI Seen Tamer on Energy Price Drop, Erasing Food Pressures
By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week. Currency traders are on alert for a possible market intervention by the Ministry of Finance to sell dollars for yen following signs that both the Japanese and U.S. financial authorities checked the dollar-yen exchange rate on Friday to prevent the U.S. unit from rising above a key psychological level of ¥160.
Prime Minster Sanae Takaichi on Sunday joined the chorus of top MOF officials, warning that the government would take “necessary steps” against “speculative moves” in the currency market.
Japanese politicians are busy vying for their seats in the House of Representatives in an exceptionally short campaign period after Prime Minister Takaichi on Friday dissolved the lower chamber of parliament at the start of its 150-day ordinary session, delaying deliberation of the fiscal 2026 budget.
With a two-week political vacuum before the Feb. 8 election, lawmakers will not have the time needed to debate the budget and vote in the powerful lower house budget committee and then in the upper house before the new fiscal year begins on April 1.
Most opposition parties are seeking to use the fact of the delayed Diet schedule to discredit Takaichi and her conservative Liberal Democratic Party, some calling the PM “a liar” for not pursuing immediate fiscal measures she promised to help ease the pain on households hit by elevated costs of daily necessities. Others describe the election call as an act of “self-preservation.”
On the back of high approval ratings since Takaichi took office in late October, she is seeking to justify a snap election less than 16 months after her predecessor called one and lost, with a new mandate to boost spending while limiting new debt issuance.
In July 2025, Takaichi’s predecessor Shigeru Ishiba led the ruling coalition to a clear setback in the 248-member upper House of Councillors, failing to secure a 125-seat simple majority. That followed a crushing defeat in October 2024, when Ishiba’s LDP shrank to 191 seats in the more powerful 465-member House of Representatives. The LDP’s then coalition partner Komeito brought them up to 215 seats, well below the 233 majority. After Komeito left the coalition, the LDP found a new partner, Japan Innovation Party (Ishin no Kai), which holds 34 seats in the lower house.
Japanese stock markets have hit record highs and bonds have been heavily sold since news reports on Jan. 9 that Takaichi was considering calling an election, which she announced 10 days later.
The initial market reaction reflected hopes that a general election win for the conservative ruling party, currently in a shaky coalition, will stabilize the government and allow Takaichi to pursue a dual fiscal policy that she describes as “responsible” restraint on large-scale debt issuance with “active” public spending.
At the same time, investors feared that the LDP’s already large fiscal spending plans would require more debt issuance and push up borrowing costs, sending yields on long-term bonds to 27-year highs.
On the data front, solid Japanese trade data is expected despite the drag from U.S. trade rows and recovering consumer sentiment amid easing inflation point to some resilience in volatile factory output and shipments in the October-December quarter, which in turn should support a slight rebound in Q4 GDP (data due on Feb. 16).
The index of industrial production saw a good start to the final quarter of 2025, rising 1.5% on the month to a nearly two-year high of 104.7 in October, before slipping back a deeper-than-expected 2.6% to a three-month low of 101.9 in November. The median economist forecast for December is a slight 0.4% setback to 101.5, still above 100.6 seen in August (the lowest since 99.9 at the start of the year), which would lift the IIP to 102.7 in Q4 from 102.0 in Q3, 101.9 in Q2 and 101.5 in Q1.
Inflation in Tokyo is expected to show a further slowdown, thanks to falling costs for utilities and gasoline and the recent easing trend in processed food prices now that rice supply shortages have been resolved. It is, however, cold comfort for many households struggling to make ends meet with falling real wages. Rice still costs 30% more than a year ago, coffee beans are 60% more expensive and chocolate is up 25%.
– Tuesday, Jan. 27
1400 JST (0500 GMT/0000 EST Tuesday, Jan. 27) The Bank of Japan releases the details of its real trade indexes for December and the fourth quarter of 2025 based on the trade data released by the Ministry of Finance on Jan. 22.
The summary of the BOJ’s real trade data showed that the real export index (2020 = 100) slipped back 3.8% on the month in December after surging 6.7% in November and falling 3.7% in October. In the fourth quarter, the index rebounded 1.1% from the third quarter, when it dipped 1.4%.
This indicates that external demand led the Q4 GDP to post a slight rebound after the economy recorded its first contraction in six quarters in Q3, down 0.6% on quarter, or 2.3% annualized. It was hit by a pullback in net exports after U.S. tariffs front-running skewed exports higher in April-June, when the GDP grew 0.5%, an annualized 2.1%.
– Friday, Jan. 30
0830 JST (2330 GMT/1830 EST Thursday, Jan. 29) The Ministry of Internal Affairs and Communications releases January Tokyo CPI.
Mace News median: total CPI +1.8% y/y (range: +1.6% to +1.9%) vs. Dec +2.0%; core CPI (ex-fresh food) +2.2% (range: +2.1% to +2.2%) vs. Dec +2.3%; core-core CPI (ex-fresh food, energy) +2.6% (range: +2.4% to +2.6%) vs. Dec +2.6%
Consumer inflation in Tokyo, a leading indicator of the national trend, is expected to continue moderating to around the Bank of Japan’s 2% price stability target in two of the three key measures in January, thanks to falling prices for utilities and gasoline and a slower pace of processed food price hikes now that rice supply shortages have been resolved. The government abolished a decades-old “temporary” gasoline surcharge at the end of December whose price-cutting impact is set to emerge this month.
The prices of fresh vegetables and fruits surged in early 2025 on poor crops of 2024 but have now shown a pullback, cooling off the overall inflation rate.
The core measure (excluding fresh food) is expected to post a 2.2% increase on the year after the annual rate decelerated sharply to 2.3% in December from 2.8% in November on falling energy prices. The total CPI is forecast to show an even more tame figure of 1.8%, slowing further from 2.0% in December and 2.7% the prior month. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by fluctuations in a series of energy subsidies and tax code changes, is seen steady at 2.6%.
– Friday, Jan. 30
0830 JST (2330 GMT/1830 EST Thursday, Jan. 29) The Ministry of Internal Affairs and Communications releases December jobs.
Mace News median: 2.6% (range: 2.5% to 2.6%) vs. 2.6% in the previous four months, over 5-year low of 2.3% in July, 2.5% from March to June
Japanese payrolls are expected to post a 41st straight year-on-year increase in December as many firms are seeking to secure qualified workers, particularly at hospitals, hotels, restaurants and technical service providers. By contrast, manufacturers and the wholesale/retail sector continue to show a decline in employment.
The seasonally adjusted unemployment rate is forecast to remain stable at 2.6% after being flat in the previous three months, rising to the current level in August and hitting a more than five-year low of 2.3% in July.
The jobless rate has stayed in a tight 2.3% to 2.6% range this year. The 2.3% rate in July is the lowest since 2.2% recorded in December 2019 in the early phase of the pandemic.
The government continues to describe employment conditions as “showing signs of improvement” in its latest monthly economic report for December, unchanged since the last upgrade in June 2023.
– Friday, Jan. 30
0850 JST (2350 GMT/1850 EST Thursday, Jan. 29) The Ministry of Economy, Trade and Industry releases December and fourth quarter industrial production, outlook for January and February.
Mace News median: -0.4% m/m (range: -1.5% to +0.3%) vs. Nov. revised down to -2.7% from -2.6%; +2.3 y/y (range: +1.2% to +3.0%) vs. Nov. revised down to -2.2% from -2.1%
Japan’s industrial production is projected to post a second straight decrease in December, down 0.4% on the month, as the impact of stiff Trump tariffs on automobiles and metals emerged more in the final quarter of 2025. The pace of decline, however, is expected to decelerate from a 2.7% slump (revised down from -2.6%) in November, when factory operations took a breather after the production level rose 1.5% to a nearly two-year high in October.
The latest trade data showed that Japan’s export values posted their fourth straight rise on year in December, up 5.1%, reflecting solid demand from Europe and Asia that is offsetting the drag from depressed auto exports to the United States. Exports hit a record high of ¥10.4 trillion, surpassing the previous high of ¥9.91 trillion reached in December 2024.
The monthly survey by the Ministry of Economy, Trade and Industry released last month indicated that output would slip 0.6% on the month in December before rebounding sharply by 8.0% in January.
Last month, the ministry repeated is assessment 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, Jan. 30
0850 JST (2350 GMT/1850 EST Thursday, Jan. 29) The Ministry of Economy, Trade and Industry releases December retail sales.
Mace News median: +0.4% y/y (range: -0.5% to +1.4%) vs. Nov revised up to +1.1% from +1.0%; -0.6% m/m (range: +1.0% to -0.3%) vs. Nov revised up to +0.7% from +0.6%
Japanese retail sales are forecast to have risen just 0.4% on year in December for a fourth straight increase after rising at a tepid pace 1.1% (revised from +1.0%) in November on falling fuel costs and slower department store sales as the post-Covid spending spree among visitors from overseas has waned and Chinese tourists bypassed Japan over strained bilateral diplomatic ties. Retail sales values have picked up recently but the pace of year-on-year increase has slowed from above 3% seen in early 2025.
Industry data released Friday showed that department store sales recorded their first year-on-year drop in December, down 1.1%, after rising a modest 0.9% in November. There were four Sundays last month, one fewer busy shopping day compared to a year earlier, but it was largely the result of the latest feud between Tokyo and Beijing over Prime Minister Sanae Takaichi’s remarks that a military threat to Taiwan would heighten Japan’s own security risks.
Department store sales to domestic customers rose 0.6% from a year earlier in December for the fifth straight increase while those to inbound shoppers plunged 17.1%. Duty-free sales slumped for the second straight month, hit by a 40% drop in the number of Chinese visitors and also sales to them, although sales to visitors from Taiwan, Thailand and Malaysia posted gains.
On the month, retail sales are also expected to show their first drop in four months, down 0.5%, on a seasonally adjusted basis after rising 0.7% (revised from +0.6%) the previous month.
The Ministry of Economy, Trade and Industry is likely to maintain its assessment after upgrading it last month for the first month in eight months, saying retail sales are “taking one step forward, one step back.”
– Friday, Jan. 30
1900 JST (1000 GMT/0500 EST Friday, Jan. 30) The Ministry of Finance releases daily records of any foreign exchange intervention from Dec. 29 to Jan. 28.
The dollar plunged against the Japanese unit on Friday on market talk that the MOF was checking the dollar-yen rate through the Bank of Japan, followed by a suspected similar action by the U.S. Treasury Department via the Federal Reserve Bank of New York. Rate checks and rounds of verbal intervention by senior officials could lead to an actual move into the forex market to, in this case, sell dollars for yen.