Monthly Economic ReportExecutive Summary( dec 2025 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace, while the effects caused from the U.S. trade policies are seen mainly in the automotive industry.
- Private consumption shows movements of picking up.
- Business investment is picking up moderately.
- Exports are almost flat.
- Industrial production is flat.
- Corporate profits improvement appears to be pausing, while the effects caused from the U.S. trade policies are seen mainly in the automotive industry.
Firms'judgments on current business conditions have been almost flat. - The employment situation shows movements of improvement.
- Consumer prices have been rising.
Concerning short-term prospects, the improvement in the employment and income situation and the effects of the policies are expected to support a moderate recovery, while attention should be given to downturn risks of the Japanese economy due to the impact of the U.S. trade policies are increasing. In addition, the effects of continued price increases on private consumption are also downside risks to the Japanese economy. Also, continued attention should be given to the effects of fluctuations in the financial and capital markets.
(Policy stance)
The Government will strive to build a “Strong Japanese Economy” through the strategic employment of fiscal policies embracing an approach of “responsible and proactive public finances” and based on the principle of “a sound economy is the foundation of fiscal health”.
The Government will restore strength to the Japanese economy while tackling rising prices and safeguarding people's daily lives. To this end, the Government will promptly implement “Comprehensive Economic Measures to Build a “Strong Japanese Economy”” consisting of three pillars “Securing Everyday Life and Measures to address rising prices”; “Strategic Investments that Enhance Resilience against Potential Crises”; and “Strengthening Defense Capability and Diplomatic Power” and the FY2025 supplementary budget. Moreover, the Government will compile the FY2026 budget in light of the “Basic Principles of FY2026 Budget Formulation” (December 9th, Cabinet decision) and the “Fiscal 2026 Economic Outlook and Basic Stance for Economic and Fiscal Management” (to be approved).
On December 19th, the Bank of Japan decided to encourage the uncollateralized overnight call rate to remain at around 0.75 percent.
The Government and the Bank of Japan will continue to work closely together to conduct flexible policy management in response to economic and price developments.
The Government expects the Bank of Japan to achieve the price stability target of two percent in a sustainable and stable manner, while confirming the virtuous cycle between wages and prices, by conducting appropriate monetary policy management in light of economic activity, prices and financial conditions.
Detailed explanations
1. Demand trends such as consumption and investment
Private consumption shows movements of picking up.
According to Quarterly Estimates of GDP for July-September 2025 (Second Preliminary Estimates), the real term of private consumption increased by 0.2% from the previous quarter. According to Consumption Trend Index (CTI), the real term of Total Consumption Trend Index (CTI macro) decreased by 0.3% from the previous month in October.
As for each index, looking at the Consumption Trend Index (CTI), which comprises demand-side statistics, the real value of the Household Consumption Trend Index (CTI micro, total households) decreased by 4.9% from the previous month in October. Looking at Current Survey of Commerce, which comprises supply-side statistics, the retail sales value increased by 1.6% from the previous month in October.
Looking at the background of consumption trends, real wage income of employees is picking up moderately. Consumer confidence is picking up.
Moreover, based on the interview results, new automobile sales are almost flat. Home appliance sales are increasing moderately. Travel is almost flat. Eating-out is increasing moderately.
Based on these results, private consumption shows movements of picking up.
Concerning short-term prospects, consumption is expected to pick up, supported by the improvement in the employment and income situations. However, attention should be given to the trends in consumer sentiment.
Business investment is picking up moderately.
Business investment is picking up moderately. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey, including software investment) show that business investment decreased in the July-September quarter of 2025 by 1.4% from the previous quarter. By industry, business investment decreased for manufacturers by 5.1% from the previous quarter and increased for non-manufacturers by 0.7%.
Capital Goods Shipments and Imports (excluding transport equipment), which comprise supply-side statistics on investment in machinery and equipment, are almost flat. Software investment is increasing.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (December survey), planned business investment for all industries in fiscal year 2025 is expected to increase. According to the BOJ Tankan (December survey), DI for firms' judgment on production capacity was ±0 for manufacturers, showing that the sense of excessive capacity decreased by 1 point from the September survey (+1), while the DI was -3 for all industries, including non-manufacturers, showing that the sense of insufficient capacity increased by 1 point from the September survey (-2). The figures for Orders Received for Machinery, a leading indicator, show movements of picking up. The planned amount of construction is almost flat.
As for short-term prospects, business investment is expected to continue to be on a pickup trend, mainly reflecting corporate profits, which have been steady so far, and actions for labor-saving investment.
Housing construction is in a weak tone.
Housing construction is in a weak tone. New construction starts of dwellings increased by 10.2% from the previous month to 803,000 dwelling units (annualized) in October. By owner occupant relation, construction of owned houses and houses for sale is in a weak tone. Construction of houses for rent has been in a weak tone recently. In addition, the total number of sales of condominiums in the Tokyo metropolitan area is almost flat.
As for short-term prospects, housing construction is expected to remain in a weak tone for the time being.
Public investment holds firm.
Public investment holds firm. The amount of public construction completed in October increased by 0.6% from the previous month, the amount of contracted public works in November decreased by 13.8% from the previous month, and the amount of public works orders received in October increased by 29.8% from the previous month.
As for short-term prospects, public investment, partly due to the effect of the supplementary budget, is expected to show steady performance.
Exports are almost flat. Imports are almost flat. The balance of goods and services is in deficit.
Exports are almost flat. By region, exports to Asia have been in a weak tone recently. Exports to the U.S. show movements of picking up. Exports to the EU and other regions are almost flat. As for short-term prospects of exports, attention should be given to such factors as the direct impact of the tariff increase by the U.S., and the indirect impact of trade issues through the world economy.
Imports are almost flat. By region, imports from Asia and the EU are almost flat. Imports from the U.S. have been showing movements of picking up recently. Concerning short-term prospects, imports are expected to pick up.
The balance of goods and services is in deficit.
The surplus in the balance of trade in October decreased, as export values decreased to a larger extent than import values. The balance of services is in deficit.
2. Corporate activities and employment
Industrial production is flat.
Industrial production is flat. The Indices of Industrial Production increased by 1.5% from the previous month in October. The Indices of Industrial Inventories increased by 0.4% from the previous month in October. The Survey of Production Forecast in Manufacturing expects a decrease of 1.2% in November and a decrease of 2.0% in December.
By industry, transport equipment is flat. Production machinery is flat. Electronic parts and devices have been picking up recently.
As for short-term prospects of production, attention should be given to such factors as the impact of trade issues.
Tertiary industry activity is increasing moderately.
Corporate profits improvement appears to be pausing, while the effects caused from the U.S. trade policies are seen mainly in the automotive industry. Firms’judgments on current business conditions have been almost flat. The number of corporate bankruptcies appears to be increasing.
Corporate profits improvement appears to be pausing, while the effects caused from the U.S. trade policies are seen mainly in the automotive industry. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2025 increased by 19.7% from the previous year and increased by 3.3% from the previous quarter. By industry, manufacturers saw an increase of 23.4% in corporate profits from the previous year, and non-manufacturers saw an increase of 17.6%. By size of company, large and medium-sized companies saw an increase of 19.8% from the previous year, and small companies saw an increase of 19.2%. According to the BOJ Tankan (December survey), in fiscal year 2025, sales are expected to increase by 2.4% in the first half of the year and increase by 1.5% in the second half from the previous year. Current profits are expected to increase by 6.3% in the first half and decrease by 11.5% in the second half from the previous year.
Firms' judgments on current business conditions have been almost flat. The BOJ Tankan (December survey) revealed that DI for firms'judgment on current business conditions rose for all enterprises in all industries by 2 points from the previous quarter. By industry, the DI rose for all enterprises in the manufacturing industry by 4 points from the previous quarter, and remained unchanged for all enterprises in the non-manufacturing industry. Firms' judgment on future business conditions, which indicates the business conditions as of March, is slightly more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (November survey), current and prospective business conditions both fell.
The number of corporate bankruptcies appears to be increasing. The number of corporate bankruptcies was 965 in October and 778 in November. Total liabilities were 127.5 billion yen in October and 82.4 billion yen in November.
The employment situation shows movements of improvement.
The employment situation shows movements of improvement. The sense of a labor shortage is at a high level.
The total unemployment rate was 2.6% in October, the same level as the previous month. The labor force, the number of employed persons, and the number of unemployed persons all increased. The employment rate is on a moderate upward trend.
Looking at Employment Referrals for General Workers, the number of new job offers at Public Employment Security Offices is on a downward trend. The active job openings to applicants ratio has been decreasing moderately recently.
Looking at the year-on-year number of job offers at private employment agencies, it is on a slight downward trend both for regular employment and part-time employment (excluding “casual work”).
As for the movement of wages, contractual cash earnings and the total cash earnings are increasing. Real wage income of employees is picking up moderately. Overtime hours worked in the manufacturing industry increased.
According to the BOJ Tankan, DI for firms'judgment on current employment conditions, which shows firms’ sense of a labor shortage, was -38 for all industries in December, showing that the sense of a labor shortage increased by 2 points from the September survey (-36). The DI was -25 for manufacturers, showing that the sense of a labor shortage increased by 1 point from the September survey (-24), and the DI was -46 for non-manufacturers, showing that the sense of a labor shortage increased by 2 points from the September survey (-44).
As for short-term prospects of the employment situation, it is expected to improve.
3. Prices and the financial market
Producer prices have been rising moderately recently. Consumer prices have been rising.
Producer prices have been rising moderately recently.
Consumer prices, in terms of general, excluding fresh food and energy, have been rising.
Consumer prices, in terms of general, excluding fresh food (referred to as “core”) have been rising moderately.
According to the Monthly Consumer Confidence Survey (multi-person households), as for the ratio of households expecting prices to rise a year ahead, 11.3% expected a rise of less than 2% (9.2% in the previous month), 34.6% expected a rise of 2 to 5% (32.9% in the previous month), 26.6% expected a rise of 5 to 10% (29.6% in the previous month), and 18.1% expected a rise of 10% or more (20.9% in the previous month) in November.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to rise for the time being.
As for stock prices, after rising from the 50,100-yen level to the 51,000-yen level, the Nikkei Stock Average declined to the 49,500-yen level. The yen against the U.S. dollar (inter-bank spot rate) moved from the 154-yen level to the 156-yen level.