–June Industrial Output Seen Flat, Retail Sales Sluggish, Setting Soft Tone for Q2 GDP Due August 15
–June Jobless Rate to Remain Low and Stable at 2.5%, Job Creation Continues for Nearly 3 Years amid Labor Shortages
By Max Sato
(MaceNews) – Here are the key Japanese economic and political events for the coming week.
Prime Minister Shigeru Ishiba has vowed to stay in power to defend Japan’s wobbly economic recovery from the drag from Trump tariffs and resulting slower global growth and also from elevated food prices triggered by protracted domestic rice supply shortages and high import costs.
The Mainichi Shimbun daily reported Wednesday that the conservative veteran politician with a liberal slant had decided to step down by the end of August after leading the ruling Liberal Democratic Party to a historic defeat in the Upper House election on July 20, quoting unidentified sources close to the leader.
Other news media including the public broadcaster NHK didn’t follow up but noted there was mounting pressure from some LDP lawmakers and the leaders of all major opposition parties on Ishiba to resign. The LDP and its small coalition partner Komeito lost a majority in the more powerful lower house of the Diet in October.
On the economic front, Bank of Japan policymakers appear to be sitting on the sidelines for now, waiting for the trade overcast to clear up before resuming raising interest rates. The bank is in the policy normalization process begun in March 2024 under Governor Kazuo Ueda, ending a decade of massive cash injections by his predecessor from 2012 until 2023 aimed at turning the deflationary mindset and enticing households to spend and businesses to invest.
The magnitude of the trade war initiated by U.S. President Donald Trump is so large that it seems to be making the BOJ board even more cautious about the pace of its rate hikes — with 25 basis point rate increases coming every 12 months rather than every six months or so. Ueda, who took office in April 2023, shifted gears in March 2024 with the first rate hike in 17 years and an end to the seven-year-old yield curve control framework. The board conducted its second rate hike this cycle in July 2024, lifting the policy rate to 0.25% from a range of 0% to 0.1%, and raised it by 25 basis points again to 0.5% in January 2025.
– Monday, July 28
LDP lawmakers from both the upper and lower chambers of the Diet will gather to discuss the results of the election defeat.
– Thursday, July 31
0850 JST (1950 EDT/1650 PDT Wednesday, July 30) The Ministry of Economy, Trade and Industry releases June, Q2 industrial production, outlook for July, August.
Mace News median: +0.1% m/m (range: -1.0% to +0.7%) vs. May revised down to -0.1% from +0.5%; +2.1% y/y (range: +1.3% to +5.3%) vs. May revised down to -2.4% from -1.8%
Japan’s industrial production is forecast to be little changed, up just 0.1% on the month in June (forecast range: -1.0% to +0.7%) after being also nearly flat in May with a 0.1% dip (revised down from a slight 0.5% rebound) in the face of lingering global trade conflicts sparked by the protectionist U.S. policy.
Trade data showed Japanese export values posted their second straight year-on-year drop in June while export volumes were up for the third month in a row. This is because Japanese automakers have reduced the prices for their U.S. customers to cover higher import costs triggered by stiff tariffs by President Trump in a bid to protect their market share.
Tokyo and Washington have agreed to lower the “reciprocal” tariff rate to 15% on most U.S. imports of Japanese goods including automobiles and auto parts (50% on iron and steel), down from President Trump’s original plan to slap 25% duties on Japan, but the figure is still much higher than the 2.5% rate imposed by the United States before the second Trump administration.
The two allies have also agreed to work closely together to build strong supply chains in the United States for critical sectors including semiconductors, drugs, steel, shipbuilding, key minerals, air transport, energy, automobiles and artificial intelligence. In the trade deal on building “mutually beneficial” supply chains, Tokyo will spend up to $550 billion by making investments and extending loans from Japan Bank for International Cooperation and providing underwriting by Nippon Export and Investment Insurance.
The monthly survey by the Ministry of Economy, Trade and Industry released last month indicated that output would slump 1.9% in June, led by a pullback in transport equipment (possibly hit by the Trump tariffs on autos) and general machinery, before sliding a further 0.7% in July due to declines in transport equipment and electric/information telecommunications equipment (this category includes laptop computers, semiconductor detectors).
From a year earlier, factory output is expected to have risen 2.1% after slumping 2.4% in May (revised down from -1.8%), which was the first drop in five months.
Last month, the ministry maintained its assessment, saying industrial output is “taking one step forward and one step back.” The last change was made in the July 2024 report, when it upgraded its view.
– Thursday, July 31
0850 JST (1950 EDT/1650 PDT Wednesday, July 30) The Ministry of Economy, Trade and Industry releases June retail sales.
Mace News median: +2.2% y/y (range: +1.7% to +3.0%) vs. May revised down to +1.9 from +2.2%; +1.1% m/m (range: +0.2% to +1.4%) vs. May revised down to -0.6% from -0.2%
Japanese retail sales are forecast to show a modest 2.2% rise on the year in June, little changed from +1.9% in May (revised down from +2.2%) and slowing sharply from +3.5% in April as department store sales suffered a fifth straight drop, hit by lower inbound spending amid a firmer yen and stricter duty-free shopping rules. Continued solid demand for drugs and cosmetics are propping up retail sales. New vehicle sales are on a gradual recovery trend after last year’s production suspension by the Toyota Motor group over safety test scandals.
Many department store chains report that spending by visitors from other countries has been falling in recent months in light of the appreciation of the yen to an average Y144.50 to the dollar in June from Y157.82 a year earlier as well as stricter duty-free shopping rules.
On the month, retail sales are expected to post a solid 1.1% rise after slipping 0.6% in May (revised down from -0.2%) and rising 0.7% in April.
Last month, the Ministry of Economy, Trade and Industry downgraded its assessment for the first time in eight months after upgrading it in the February report, saying retail sales are “taking one step forward and one step back.” Previously, sales had been “on a gradual pickup trend.”
– Thursday, July 31
1130 JST (c.0230 GMT Thursday/2230 EDT Wednesday, July 30) The BOJ releases the outcome of its two-day policy board meeting in a monetary policy statement, the quarterly Outlook Report.
1530-1615 JST (0130-0230 EDT Thursday, July 31) BOJ Governor Kazuo Ueda holds a news conference to discuss the board’s decision, the bank’s latest GDP, CPI forecasts and risk analysis.
The Bank of Japan’s nine-member board is widely expected to vote unanimously to maintain the target for the overnight interest rate at 0.5% for the fourth straight time at its meeting on July 30-31 amid uncertainty over trade conflicts and geopolitical risks.
In a post-meeting news conference, Governor Ueda is expected to repeat that the bank will continue raising rates “gradually” as part of its policy normalization process that began in March 2024.
For more details, see the BOJ preview on Mace News.