Japan

Research evidence excerpt

Japan

- pass-through to consumer prices.

ently supported by a large, unidentified source of demand. In

response to the recent rise in yields, the government is gradu- Figure 1: Reuters Tankan large firms' sentiment - Headline

ally shifting course, planning to add language to the growth DI, level of conditions, boxes denote 3-mo outlook

strategy stating that it respects the BoJ’s independence. This 40 Non-mfg.

week, Katayama reiterated that point and expressed the inten-

tion to maintain market confidence. 20

Against this backdrop, the “National Council” convened at

PM Takaichi’s direction to discuss a consumption tax cut -20 Mfg.

starting next fiscal year. There has been significant opposition

to the cut, and there is no clear path to consensus. With the -40

end of July—effectively the deadline ahead of deliberations 08 10 12 14 16 18 20 22 24 26 Source: Reuters, J.P. Morgan

on related legislation in the fall Diet session—fast approach-

ing, the final decision likely will once again fall on PM Taka- Figure 2: Reuters Tankan, electrical machinery

ichi. While her approval ratings remain high, they have been DI, level of conditions

gradually trending lower amid concerns about yen weakness 60

and rising inflation. In this environment, the Takaichi may be

forced to make a difficult choice between maintaining market

confidence and protecting her own public support. 20

With demand remaining strong, broad-based inflationary

pressures—triggered by higher petroleum product prices—are -20

strengthening. This week’s July Reuters Tankan showed that -40

while manufacturers’ sentiment remains resilient on the back 15 16 17 18 19 20 21 22 23 24 25 26 27

of continued strength in AI-related demand, rising input costs, Source: Reuters, J.P. Morgan