–Producer Inflation Seen Easing Further on Lower Fuel Costs but at Gradual Pace amid Rising Copper Prices
By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week.
Prime Minister Sanae Takaichi led the conservative Liberal Democratic Party to a historic landslide victory in Sunday’s lower house election, paving the way for delivering on her campaign promises to lift the economy’s growth potential and beef up national security through a potentially easier process of debating and voting on bills in hung parliament. The LDP does not hold a majority in the upper house after losing seats in an election last year under Takaichi’s predecessor.
Takaichi told public broadcaster NHK that she would basically keep the current cabinet lineup that was formed less than four months ago to ensure stable policymaking. The prime minister is expected to stay cautious about discussing what the Bank of Japan should do, allowing Governor Kazuo Ueda to focus on continuing normalizing overnight interest rate levels toward 1% and above from around zero.
Japanese stock prices have already been hitting record highs in step with an AI-boom led uptrend in the U.S. markets and on expectations that Takaichi’s large fiscal spending plans would benefit many sectors. At the same time, concerns that those plans would require more debt issuance have pushed up bond yields. These trends are expected to continue for now.
The LDP swept through most single-seat constituencies, winning an estimated 316 seats in the 456-member House of Representatives, up sharply from 198 before the election, and clearing the crucial two-thirds line of 310 seats. This would allow the ruling party to override the upper house on legislation and initiate procedures to revise the constitution. It is the first time by any party to secure a two-thirds majority on its own in the lower chamber in the post-war period.
Takaichi’s high approval ratings since she took office in late October helped propel the LDP to grab all single-seat constituencies in Tokyo (30) and its neighboring prefectures of Kanagawa to the southwest (20) and Saitama to the north (16) as well as its traditional stronghold of Gunma (5). The party also controls all ridings in Miyagi (5), Fukushima (4) and Niigata (5) in the northeastern regions. The LDP’s loose coalition partner Japan Innovation Party remains dominant in the western commercial hub of Osaka (19) where it is based, sweeping all but one ridings there and raising its lower house strength to 36 seats from 34.
In a sharp contrast, the new opposition group Chudo (Centrist Reform Alliance) between the Constitutional Democratic Party of Japan and Komeito suffered a stunning defeat, reducing its seats to 49 from 172. This prompted co-leaders Yoshihiko Noda of the CDPJ, who was the prime minster from 2011 to 2022, and Tetsuo Saito of Komeito to resign.
The last-minute pre-election merger backfired as voters had hardly any time to digest the abrupt emergence of a centrist concept and were unable to figure out whether the new group could do a better job than the LDP in raising take-home pay, reining in costs of living and defending Japan’s economic security and national borders.
On the data front, the Economy Watchers Survey for January released Monday showed that a gradual pickup in consumer and business sentiment was dampened by bad weather and rising borrowing costs for housing construction. Department store sales have seen a plunge in spending by visitors from overseas as China has urged its citizens to boycott Japan over Prime Minister Takaichi’s remarks that a military threat to Taiwan would heighten Japan’s own security risks.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate fell for the third straight month. It edged down to a seasonally adjusted
47.6 in January after slipping to 47.7 in December from 48.0 in November and rising to a 10-month high of 48.2 in October from 47.0 in September. The index has stayed under the key 50 line for nearly two years. It was last above the neutral line in March 2024 (50.1). The Cabinet Office revised recent figures in an annual update to seasonal adjustments.
The Watchers’ outlook index, which shows sentiment in two to three months, rose to 50.1 from 49.5 in December and 49.4 in November. The index surged to 52.2 in October from 48.4 in September, returning to positive territory for the first time since August 2024 (50.2).
For this week, producer inflation is expected to slow further in January on easing farm produce prices and falling fuel costs, which are somewhat offset by rising copper prices.
Looking ahead, the economy is forecast to post a slight 0.4% rebound on quarter, or an annualized 1.7%, in the October-December quarter in the Q4 GDP data due on Feb. 16. That would follow its first contraction in six quarters in Q3, down 0.6% q/q (2.3% annualized). Domestic demand is expected to add 0.4 percentage point to the Q4 GDP vs. -0.4 point in Q3 while net exports (exports minus imports) are seen lifting total domestic output by 0.1 point vs. -0.2 point previously. Private consumption is projected to be resilient, rising 0.2% q/q for a seventh straight gain, after growing at the same pace in Q3.
– Thursday, Feb. 12
0850 JST (2350 GMT/1850 EST Wednesday, Feb.11) The Bank of Japan releases the January corporate goods price index.
Mace News median: CGPI +2.3% y/y (range: +2.0% to +2.4%) vs. Dec +2.4%; +0.2% m/m (range: -0.1% to +0.3%) vs. Dec +0.1%
Producer inflation in Japan is expected to ease further to 2.3% in January after sliding to a 20-month low of 2.4% in December and being steady at 2.7% in November now that domestic rice supply shortages have been resolves, taming farm produce price gains. Fuel prices are also sliding on slower global demand and Japan’s elimination of a decades-old top-up gasoline tax. These factors were partly offset by rising copper prices in light of supply disruptions, the outlook for strong Chinese demand and expected high requirements from the information technology industry.
The projected 2.3% increase in the corporate goods price index remains the slowest since 1.2% in April 2024. On the month, the CGPI is forecast to post a fifth straight increase, up 0.2% in January after rising 0.1% December.
Producer prices have eased gradually in recent months after having hit a recent peak of 4.3% in each of February and March 2025 (the highest since 4.5% in June 2023).