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Japan’s labor market remained stable in December. The unemployment rate held at 2.6%, matching both expectations (2.6%) and the prior (2.6%). The jobs-to-applicants ratio ticked up to 1.19 from 1.18 (and above the 1.18 expected), signaling slightly tighter labor demand—still consistent with a firm employment backdrop.

Tokyo’s January inflation prints came in softer than expected, signaling easing near-term price momentum. Tokyo core CPI (ex fresh food) slowed to 2.0% y/y (vs 2.2% expected, 2.3% prior). The broader Tokyo CPI also cooled to 1.5% y/y (down from 2.0%). More importantly for “underlying” inflation, CPI ex food & energy eased to 1.4% y/y (from 1.5%) and fell -0.3% m/m (vs -0.1% expected), pointing to a clearer moderation in core price pressure. The softer Tokyo data can temper near-term tightening expectations, though markets will still look to wages and nationwide CPI to confirm the disinflation signal.

Japan’s household confidence index rose to 37.9 in January, beating the 37.1 expected and improving from 37.2 previously. The uptick suggests a modest improvement in consumer sentiment, though the level remains low—implying households are still broadly cautious on spending amid inflation and real-income concerns.

Foreign investors turned net buyers of Japanese bonds (+¥177.6bn) after last week’s -¥361.1bn outflow, signaling renewed demand for JGB exposure as rates/FX volatility stays elevated. At the same time, foreigners still bought Japanese equities (+¥328.1bn), but inflows slowed sharply from +¥878.9bn previously suggesting risk appetite toward Japan remains positive, just less aggressive than the prior week.

Japan’s BoJ core CPI (y/y) came in at 1.9%, below the 2.0% expected and down from 2.2% previously, signaling a clearer step-down in underlying inflation momentum. The softer print reduces urgency for additional tightening signals in the near term and keeps markets focused on whether wage pass-through and services inflation can re-accelerate enough to sustain inflation near (or above) the 2% mark.

Japan’s Corporate Services Price Index (CSPI) rose 2.6% y/y in the latest reading, a touch softer than the 2.7% expected and 2.7% prior. The marginal cooling suggests service-sector cost pressures are easing at the edges, but the rate remains elevated enough to keep services inflation on the BoJ’s radar—especially given its link to wage pass-through and underlying price momentum.

Japan’s Coincident Indicator fell -1.0% m/m in November (vs -0.7% expected, -1.3% prior), pointing to softer current-activity momentum, while the Leading Index rose only 0.1% m/m (vs 0.7% expected, 0.9% prior), undershooting forecasts and suggesting the forward pulse is cooling. The level of the Leading Index edged up to 109.9 (vs 110.5 expected, 109.8 prior), a marginal improvement that nonetheless fails to offset the weak monthly gain—keeping the near-term outlook cautious as markets weigh whether growth traction can hold without stronger domestic demand.

Japan’s Minister for Digital Transformation, Minoru Matsumoto, attended Davos and spoke at sessions including “Country Strategy Dialogue on Japan” and “Digital Healthcare Transformation: Re-imagining Health.” He exchanged views with other ministers and global tech executives on digital policy cooperation and health technology innovation.

Market impact: Emphasis on digital health and technology collaboration may attract investor interest in innovative sectors and strengthen signals of cross-border tech policy coordination.

Japan’s December inflation data showed a clear step-down. National core CPI (y/y) eased to 2.4% (in line with expectations, down from 3.0%), while headline CPI (y/y) fell to 2.1% (from 2.9%). On the month, headline CPI fell -0.1% (from +0.3%) and CPI (NSA) declined -0.2% (from +0.3%). The print supports the view that price pressures are moderating, even as the BoJ weighs the interaction between inflation, wages, and a weaker yen.

Market impact: Marginally dovish for BoJ pricing (supports lower yields) and can be JPY-negative at the margin if it reduces urgency to hike; however, FX reaction still hinges on global yields and BoJ guidance around inflation persistence.

The Japanese yen eased after the Bank of Japan kept its policy rate unchanged at 0.75% in an 8–1 vote, while raising its inflation and growth forecasts for FY2025–FY2026, citing expectations for additional support from government spending. In market trading, USD/JPY rose about 0.2% to ~158.80, reflecting a modestly softer yen as investors weighed the “hold” decision against a marginally more optimistic outlook.

Market impact: Near-term JPY softness/volatility is likely to persist if markets view the BOJ as patient while fiscal support stays expansionary; however, upgraded forecasts keep the risk of earlier hikes in play, which can reprice JGB yields and cap USD/JPY upside on hawkish signals.

Japan’s Prime Minister Sanae Takaichi dissolved the lower house on January 23, 2026, setting a snap election for February 8 and launching what is being described as an exceptionally short 12-day campaign starting Tuesday, January 27. The move appears designed to capitalise on strong approval ratings, but it also interrupts budget work and arrives as markets scrutinise Japan’s fiscal trajectory and rising bond yields.

Market impact: Political uncertainty plus fiscal-stimulus talk is JGB-bearish / yield-supportive at the margin and can add JPY volatility; the BoJ’s reaction function (and any hints on bond-market stability) remains the key cross-asset hinge.

Japan’s December trade balance came in at ¥105.7B surplus, well below expectations (¥357.0B) and down from ¥316.7B previously. Exports rose 5.1% y/y (vs 6.1% expected/prior), while imports jumped 5.3% y/y (vs 3.6% expected, 1.3% prior), narrowing the external surplus as import growth re-accelerated. The adjusted trade balance was -¥0.21T (vs -¥0.06T expected, +¥0.01T prior), pointing to a weaker underlying trade position once adjustments are applied.

Market impact: Mildly JPY-negative on the margin (wider underlying deficit) and potentially supportive of higher imported inflation pressures if the weaker yen persists; also keeps focus on energy import costs and BoJ sensitivity to FX-driven price dynamics.