Japan Coincident Index Confirmed at 4-Month Low

Japan’s coincident economic index, which tracks factory output, employment, and retail sales, slipped to 114.3 in December 2025, below the flash estimate of 114.5 and down from November’s 114.9, marking the lowest level since August. The decline reflected pressure on autos and related sectors from U.S. trade policies. Even so, the economy continues to recover at a moderate pace, underpinned by Prime Minister Sanae Takaichi’s sweeping 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 shift away from ultra-loose policy. Policymakers stressed, however, that real rates remain “significantly negative” and financial conditions broadly accommodative.

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.