— Bank of Japan Releases Quarterly Regional Economic Report, Survey on Consumer Sentiment, Inflation Outlook
By Max Sato
(MaceNews) – Here are the key Japanese economic and political events for the coming week.
Now that the ruling conservative Liberal Democratic Party has elected its new leader, Sanae Takaichi, the focus is on what economic and social programs she will lay out and what priorities she will set on the diplomatic agenda. She is expected to put together her own team of senior policymakers this week.
The hardline conservative politician will replace the outgoing Prime Minister Shigeru Ishiba, who has stepped down to take the blame for leading the ruling coalition to crushing defeats in general elections, first in the all-important lower house in October and then in the upper house in July.
Takaichi is expected to be officially elected as the next prime minister in lower and upper house parliamentary votes in an extraordinary Diet session slated for Oct. 15. The LDP-led minority government is likely to receive just about enough support from smaller conservative parties in the opposition camp. With a majority vote in each chamber, she would become Japan’s first woman prime minister.
In its monthly economic report for July, the government dropped its long-held statement that it must ensure deflation is overcome completely. It is unknown whether Takaichi was aware of this but she told a news conference on Saturday that “it is too early to lower our guard, saying deflation is gone.”
Takaichi agrees with the official line that inflation should reflect solid domestic demand backed by wage hikes, instead of being pushed up by higher costs.
At the same time, the new LDP leader stressed that “the government should be responsible for monetary policy” and that the Bank of Japan should come up with the best possible measures for the policy. She called for closer communication between the government and the central bank.
This week the BOJ will release the quarterly regional economic report by its branch managers and the findings of its quarterly survey on consumer sentiment and inflation outlook.
The bank’s policymakers will use these and other pieces of data to assess the current economic conditions and update their medium-term growth and inflation projections as well as risk analysis in the quarterly Outlook Report to be issued after the next policy meeting on Oct. 29-30.
The BOJ’s nine-member board is unlikely to conduct a further rate hike at this timing given the uncertainty over how the U.S. tariffs will affect global and domestic economies.
– Monday, Oct. 6
1400 JST (0500 GMT/0100 EDT Monday, Oct. 6) The Bank of Japan releases the quarterly regional economic report prepared by BOJ branch managers who gather at the head office for their quarterly one-day meeting.
Japan’s real household spending is forecast to post a modest 1.0% increase on the year in August slowing from recent gains of 1.4% in July, 1.3% in June and 4.7% in May as the killer heat wave promoted many people to stay at home or in the office during the day to avoid extreme heat and humidity. That is believed to have somewhat offset the uplifting impact of solid demand for beverages, summer clothing and air conditioners. The recent recovery in vehicle purchases has also run its course after last year’s Toyota group output suspension over safety check scandals.
Easing but still elevated processed food inflation in the aftermath of severe domestic rice supply shortages has also kept many households cautious, spending less on non-essential items including gift money in line with simplified weddings and funerals during the pandemic.
Both the core (excluding fresh food) and total CPI rose 2.7% on year in August, decelerating from 3.1% in July but the annual inflation rate is still above the Bank of Japan’s 2% long-run price stability target and it is not fully supported by domestic demand that remains sluggish.
Industry data has shown that department store sales posted their first year-on-year increase in seven months in August, up 2.6%, mainly in payback for store closures during the stormy weather a year earlier and also due to the boosting effects of one more Sunday this year (five) vs. four in August 2024. Inbound spending marked its sixth straight drop but the pace of decrease decelerated as the yen stabilized after firming on year and hurting the purchasing power of visitors from other countries.
On the month, real average expenditures by households with two or more people are expected to post a seasonally adjusted 0.3% drop after rising 1.7% in July and plunging 5.2% in June.
– Friday, Oct. 10
0850 JST (2350 GMT/1950 EDT Thursday, Oct. 9) The Bank of Japan releases September corporate goods price index.
Mace News median: CGPI +2.5% y/y (range: +2.4% to +2.8%) vs. Aug +2.7%; +0.2% m/m (range: -0.3% to +0.4%) vs. Aug -0.2%
Upstream inflation has been driven by an easing but still hefty 40% y/y price gain in farm produce despite its small 0.4% share among the 23 categories that make up for the corporate goods price index. Among the largest categories, the prices for transport equipment with a 150.9% share have stabilized at around +2% and those for food and beverages (144.6%) are also stable at about 5%.
The year-on-year increase in the CGPI decelerated to a 15-month low of 2.5% in July (the slowest since 1.2% in April 2024) from 2.7% in June 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).
On the upside risk, however, the previous import cost-cutting effects of a firmer yen on the year has lost its shine as the yen’s weakness seen in the first seven months of 2024 that peaked at Y158.06 to the dollar (Tokyo hours spot monthly average rate) in July last year vs. Y146.71 in July this year. In August, the dollar yen rate averaged at Y147.67, with the yen slightly weaker than the August 2024 rate of Y146.23. The yen depreciated further to Y147.94 in September compared to a year earlier when it had firmed to Y143.38.
Higher demand for non-ferrous metals – first in anticipation for easing trade conflicts, then in light of trade deals between Washington and its allies – have provided some support to domestic producer prices in recent months, with prices up 6.2% on year in August vs. a slight 0.3% gain in July.
On the month, the CGPI is forecast to post its first rise in two months, up 0.2%,
after dipping 0.2% in August and rising 0.3% in July. The decrease in August was led by lower costs for utilities (electricity and natural gas) and farm produce (pork, chicken eggs and beef), items that had driven the July increase.
– Friday, Oct. 10
1330 JST (0430 GMT/0030 EDT Friday, Oct. 10) The Bank of Japan releases the results of its quarterly survey on consumer sentiment and inflation outlook.