Japan Coincident Index Revised Lower

Japan’s coincident economic index, which tracks factory output, employment, and retail sales, fell to 114.5 in December 2025 from 114.9 the previous month, according to flash data. It marked the lowest reading since August, underscoring the drag from U.S. trade policies on sectors such as autos. Even so, the broader economy continues to recover at a moderate pace, supported by Prime Minister Sanae Takaichi’s JPY 21.3 trillion fiscal package unveiled in November to ease household burdens, spur growth, and counter rising prices. On the monetary front, the Bank of Japan raised its key short-term rate by 25bps to 0.75% in December, its second hike of the year, signaling a cautious move away from ultra-loose policy. Still, policymakers emphasized that real rates remain “significantly negative” and overall financial conditions broadly accommodative.

Japan’s coincident economic index, which tracks factory output, employment, and retail sales, stood at 114.9 in November 2025, down from flash data of 115.2 and October's 115.9. Although the index was weaker than anticipated, it still pointed to a moderate economic recovery, supported by gains in employment and household income. However, risks to the outlook were rising, with uncertainty amplified by potential shifts in U.S. trade policy. Persistent cost pressures also continued to weigh on private consumption. On the monetary front, the Bank of Japan kept its short-term policy rate unchanged in October, leaving borrowing costs at their highest level since 2008 and extending the pause that followed January’s hike. Still, the central bank signaled that it remains open to further gradual tightening if economic activity and inflation continue to strengthen.

Japan’s coincident economic index, which tracks factory output, employment, and retail sales, fell to 115.2 in November 2025 from October’s four-month peak of 115.9, according to preliminary data. Despite the decline, the index continued to signal a moderate economic recovery, supported by improvements in employment and household income. However, downside risks to the outlook were rising, particularly as the potential impact of U.S. trade policies increases uncertainty for the economy. Persistent price pressures also remained a concern, as higher living costs could weigh on private consumption. On the monetary front, the Bank of Japan left its short-term policy rate unchanged in October, keeping borrowing costs at their highest level since 2008 and extending a pause that has been in place since the rate hike in January. That said, the central bank indicated it may continue to gradually raise rates if economic activity and inflation show further progress.