By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week.
Market participants are getting ready for Prime Minister Sanae Takaichi to call a snap election at the start of the 150-day ordinary Diet session on Jan. 23 following weekend news reports that she is weighing the option of dissolving the House of Representatives while approval ratings are still high. The reported move is not a total surprise as Takaichi needs to address (or wishes to deflect as some see it) deep-rooted voter discontent with her conservative Liberal Democratic Party’s failure to ban business donations to political parties, the main cause of funding scandals at the party.
General elections cause a political vacuum and thus it would be a gamble for Takaichi when Japan needs a swift passage of the fiscal 2026 budget that is designed to help ease elevated consumer inflation, induce private-sector investment in growth areas, provide funds to reinforce technological infrastructure and revive shipbuilding, boost defense spending and support small businesses that are being hit by stiff Trump tariffs.
It usually takes about month in each chamber to discuss an annual budget before it goes to a key budget committee vote. If lower house elections take place in early to mid-February as reported, the budget is unlikely to take effect before the next fiscal year starts on April 1.
Yet, the Prime Minister has no choice but to go ahead with calling an election. Now that her plan has been leaked to the media, she would risk becoming a lame duck if she chose not to dissolve the lower house at this timing. She has been backed by exceptionally high approval ratings since she took office in late October but they could start to slip if voters fail to see signs that her programs to ease inflation and boost growth are having immediate impacts.
Globally, geopolitical risks are expected to keep policymakers jittery about the outlook for energy prices in the face of growing tension between the United States and Iran. President Donald Trump has threatened to take miliary action if Tehran continues to kill protestors in the Islamic republic.
“The military is looking at it, and we’re looking at some very strong options,” Trump told reporters on Air Force One on Sunday night, according to news reports. Asked about Iran’s threats of retaliation, he replied, “If they do that, we will hit them at levels that they’ve never been hit before.”
Japan remains on tenterhooks when it comes to energy supply chains as it relies 95% of its crude oil imports on the Middle East, mostly shipped through the Strait of Hormuz. U.S. military action in Iran to “rescue” demonstrators could trigger retaliatory attacks on commercial vessels in the region and push up crude oil prices, at least temporarily.
Crude oil prices have trended down in recent weeks on the prospect of a supply glut until the latest development in the Middle East reminded the world that geopolitical risks could reignite a spike in energy prices.
Last week key producers confirmed their accord to suspend output hikes for the first three months of 2026 amid sluggish global demand. Seeking to expand their market share, the eight OPEC+ members – Saudi Arabia, Russia, the United Arab Emirates, Kazakhstan, Kuwait, Iraq, Algeri and Oman – raised oil output targets by around 2.9 million barrels per day in 2025, equal to almost 3% of world oil demand.
These external factors are posing a threat to Japan’s bid to prop up consumption by guiding inflation lower. The Takaichi administration is providing yet another set of utility subsidies so households can tide over the peak heating season. It has already scrapped a decades-old “provisional” surcharge for retail gasoline and diesel oil, effective on Dec. 31, which should lead fuel prices lower.
In a relatively quiet data week, produce inflation is forecast to have decelerated a few ticks to a 20-month low in December, thanks to easing domestic rice supply shortages and falling fuel prices in global markets. That is before the world’s biggest crude oil producers agreed to suspend output hikes, trying to stave off a glut during the peak of the northern hemisphere’s winter heating needs which seem to be weaker than previous thought. The decision is likely to prop up oil prices.
– Tuesday, Jan. 13
1400 JST (0500 GMT/0000 EST) The Cabinet Office releases the monthly Economy Watchers Survey for December, which was conducted from Dec. 25 to Dec. 31.
The November report indicated that confidence slipped back and the outlook turned dimmer after having improved sharply the previous month. The December survey may show similar results.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate fell to 48.7 in November on a seasonally adjusted basis after rising to a 19-month high of 49.1 in October from 47.1 in September. The index has stayed under the key 50 line for nearly two years. It was last above the neutral line in February 2024 (50.9).
While the prices for rice and other foodstuffs have stabilized, propping up sales at supermarket chains, elevated costs of living kept many consumers cautious about spending beyond necessities. The start of the flu season dented foot traffic for retailers while growing numbers of bear sightings and attacks on humans in the aftermath of a poor acorn harvest are also hurting the tourism industry.
The Watchers’ outlook index, which shows sentiment in two to three months, also dipped to 50.3 from a 27-mongh high of 53.1 in October, when it rose from 48.5 the previous month.
There are no signs of easing import costs as the yen remains depressed. Some firms have been unable to reflect the latest rounds of price hikes in materials and rising labor costs onto product prices, which in turn is exerting downward pressures on profitability.
– Thursday, Jan. 15
0850 JST (2350 GMT/1850 EST Wednesday, Jan. 14) The Bank of Japan releases the December corporate goods price index.
Mace News median: +2.4% y/y (range: +2.3% to +2.6%) vs. Nov +2.7%; +0.1% m/m (range: 0.0% to +0.3%) vs. Nov +0.3%
Producer inflation in Japan is expected to decelerate to a 20-month low of 2.4% in December after being steady at 2.7% in November. Easing domestic rice supply shortages have cooled farm produce prices while fuel prices have trended down amid slower global demand and ample crude oil supply from the OPEC and other major producers.
Gasoline prices also slipped at the end of the year as the government provided temporary subsidies to make up for lost refinery revenues that were caused by the elimination of a decades-old “provisional” surcharge for retail gasoline and diesel oil.
Producer prices have eased gradually in recent months after having hit a recent peak of 4.3% in each of February and March this year (the highest since 4.5% in June 2023).
The 2.4% year-on-year increase in the corporate goods price index would be the slowest since 1.2% recorded in April 2024. The upstream inflation rate was tame in a six-month period through March 2024, when it ranged from 0.3% to 1.2%. At the time, the Japanese government reinforced subsidies to cap utility costs and weaker global demand, particularly from China, weighed on commodities markets.
Looking ahead, Japan’s import costs are unlikely to ease much as the yen remains depressed against the dollar, the dominant settlement currency in global trade.
The monthly average dollar/yen exchange rate during the Tokyo trading hours was bid up at an 11-month high of Y155.88 in December after surging to Y155.12 in November from Y151.28 in October and Y147.94 in September and a recent low of Y144.50 in June, according to the BOJ. The U.S. unit stood at Y153.72 in December 2024.
On the month, the CGPI is expected to be nearly flat, up just 0.1%, but that would still be a fourth consecutive increase following a 0.3% gain. The latest increase was led by utilities, nonferrous metals, food and beverages and farm produce.