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Japan plans to issue about ¥29.6 trillion ($189.6B) in new government bonds to finance its FY2026 budget, with the draft indicating total spending around ¥122.3 trillion. The plan—Prime Minister Sanae Takaichi’s first full budget, due to be finalised Friday—underscores an expansionary fiscal stance and comes as investors watch for potential supply-driven pressure on longer-dated JGB yields.

Market impact: Potentially supportive for JPY via higher JGB yields, but mixed for Japan duration—larger issuance can steepen the curve and lift term premia, while risk assets may prefer that fiscal support stays growth-positive without destabilising the bond market.

Japan’s BoJ core CPI gauge held at 2.2% y/y (expected 2.2%, prior 2.2%), signaling stable underlying inflation momentum. With the measure remaining comfortably above 2%, the data reinforces the view that price pressures are persistent enough to keep policy normalization on the table, even if the BoJ remains cautious about timing and the sustainability of wage-driven inflation.

Market impact: Mildly supportive for JPY—steady above-target core inflation can underpin expectations for a gradual BoJ normalization bias, though FX reaction will still depend heavily on U.S. yields and risk sentiment.

The Bank of Japan raised its policy rate to 0.75% (in line with expectations; prior 0.50%), marking another step in policy normalization after years of ultra-loose settings.

Market impact: JPY-supportive and pushes JGB yields higher at the margin; the next leg for markets depends on BOJ guidance—especially whether it signals further hikes or a pause after this move.

Japan’s November inflation remains elevated. National core CPI held at 3.0% y/y (in line with expectations; unchanged), while headline CPI eased slightly to 2.9% y/y (from 3.0%). On a monthly basis, headline CPI was 0.4% m/m (unchanged), while the non-seasonally adjusted CPI rose 0.3% m/m (from 0.7%), pointing to slower near-term momentum but still firm inflation levels.

Market impact: JPY-supportive at the margin and keeps BOJ tightening expectations alive; the market focus shifts to wage follow-through and BOJ guidance on the pace of normalization.

Japan is back in focus as the Bank of Japan kicked off a two-day policy meeting on Thursday, with markets widely expecting a rate hike on Friday as the BOJ continues to normalize after years of ultra-loose policy. Persistent inflation above the 2% target, firmer wage dynamics, and improving domestic demand underpin the tightening case, even as global growth concerns remain an overhang.

Market impact: JPY-supportive and JGB-yield supportive at the margin; biggest sensitivity is to BOJ guidance on the pace and endpoint of further hikes.

Foreign investors were net buyers of Japanese assets, with equity inflows accelerating. Foreign investment in Japanese stocks rose to ¥528.3B (vs ¥132.8B prior), while foreign bond buying totaled ¥356.4B (vs ¥456.3B prior), showing steady demand for JGBs but a clearer shift toward equities.

Market impact: Supportive for Japanese equities and risk sentiment; mildly supportive for JPY if inflows persist, though FX will still be driven primarily by BoJ expectations and global rates.

Japan’s November trade data improved sharply, with exports accelerating and the headline balance swinging back into surplus. Exports rose 6.1% y/y (vs 4.8% expected; 3.6% prior), while imports increased 1.3% y/y (vs 2.5% expected; 0.7% prior), pointing to softer import momentum than forecast. The trade balance came in at ¥322.2B (vs ¥71.2B expected; -¥226.1B prior), marking a notable turnaround. The adjusted trade balance was ¥0.06T (vs -¥0.20T expected; ¥0.07T prior), indicating seasonally adjusted trade remained slightly positive.

Market impact: Supportive for JPY via stronger external balance and export momentum; mildly positive for Japan cyclicals, while softer imports can also hint at cooler domestic demand.

Japan’s October core machinery orders—an important proxy for business investment—rose sharply, signaling a stronger capex impulse. Orders jumped 7.0% m/m (vs -1.8% expected; 4.2% prior) and accelerated to 12.5% y/y (vs 3.6% expected; 11.6% prior), marking a clear upside surprise and reinforcing resilience in corporate spending.

Market impact: Supportive for JPY and Japan equities via firmer growth/capex optics; strengthens the case for BoJ normalization, though FX reaction will hinge on BoJ guidance and global risk tone.

Japan’s December PMI readings softened, pointing to slower momentum into year-end. The composite Manufacturing & Services PMI eased to 51.5 from 52.0, staying in expansion overall. Under the hood, the au Jibun Bank Manufacturing PMI rose to 49.7 (vs 49.0 expected; 48.7 prior) but remained below 50, signaling the factory sector is still contracting, albeit at a slower pace. The Services PMI slipped to 52.5 from 53.2, indicating services growth is moderating.

Market impact: Mixed for JPY—slower services momentum is a mild drag, but improving manufacturing and still-expansionary composite can keep BoJ normalization expectations in play; Japanese equities may see a modest headwind if growth momentum continues to cool.

Japan’s Tertiary Industry Activity Index fell 0.7% in October, reversing sharply from the prior 4.7% gain and signaling a loss of momentum in service-sector activity. The pullback suggests near-term volatility in domestic demand and could temper the “stronger growth” narrative even as markets focus on the Bank of Japan’s policy outlook.

Market impact: Mildly negative for JPY at the margin via softer domestic activity; may increase sensitivity to upcoming BoJ messaging, with rates and FX reacting to any shift in the balance between growth and normalization.

Japan’s Q4 Tankan survey remained constructive, reinforcing the narrative of resilient corporate confidence and steady investment intentions. All Big Industry capex plans rose to 12.6% (vs 12.0% expected; prior 12.5%), while the large-manufacturers index held at 15 (in line with expectations) and the big manufacturing outlook improved to 15 (vs 13 expected; prior 12). Large non-manufacturers were steady, with the diffusion index unchanged at 28, suggesting services-sector confidence remains firm even as policy hike expectations stay in focus.

Market impact: Supportive for JPY via stronger BoJ hike optics; mildly positive for Japanese equities on growth/capex momentum, though yen strength can weigh on exporters at the margin.

Japan’s industrial production rose 1.5% MoM in October, slightly above expectations of 1.4%, though slower than the prior 2.6% increase. The data points to continued recovery in factory activity, supported by steadier demand and improved supply-chain conditions.

At the same time, capacity utilization increased 3.3% MoM, accelerating from 2.5%, signaling more efficient use of production facilities.

Market impact: Mildly supportive for JPY; improving production metrics suggest firmer industrial momentum.