Latest data from the Japanese economy indicates a complex macroeconomic situation. In January, core inflation slowed to 2%, marking the lowest reading in two years. Simultaneously, December brought a record-breaking, over 19% increase in machinery orders, while February's PMI indicators for manufacturing and services suggest dynamic expansion. This situation presents Prime Minister Sanae Takaichi with the challenge of reconciling fiscal stimulus with the Bank of Japan's policy.

Inflation at Two-Year Low

The consumer price index fell in January to 2%, the lowest level in two years and may delay interest rate hikes.

Record Industrial Orders

Machinery orders rose by 19.1%, significantly exceeding forecasts and signaling strong investment optimism among Japanese enterprises.

Expansion of Business Activity

The manufacturing PMI reached 52.8 points, the best result in four years, confirming economic recovery.

Political Success of Sanae Takaichi

Support for the LDP rose to 30.1% after the election victory, facilitating the prime minister's implementation of plans for active fiscal policy.

The Japanese economy is at a turning point, as confirmed by statistical data published on Friday. Core inflation in January stood at 2% year-on-year, a result in line with market expectations but also the lowest reading since January 2024. The slowdown in price growth from the 2.4% recorded in December is largely due to temporary factors, yet it may complicate the plans of the Bank of Japan regarding further monetary policy tightening. On the other hand, the real economy shows exceptional resilience and optimism. December machinery orders, considered a key indicator of future private investment, rose by 19.1%, nearly five times exceeding analysts' forecasts. Additionally, preliminary PMI data for the manufacturing sector increased in February to 52.8 points, the fastest pace of industrial growth in four years. The services sector is also performing excellently, achieving a score of 53.8 points, the highest since last May. Japan's economy struggled with deflation and stagnation for decades, forcing authorities to use unconventional methods to stimulate growth, including negative interest rates. The current paradigm shift under the new administration aims to permanently pull the country out of chronic lack of price momentum. Prime Minister Sanae Takaichi, who recently won the elections, is preparing to present a new economic vision to Parliament. Her plan involves active fiscal policy and incentives for investment in key technologies. Although markets fear excessive spending, the prime minister declares a desire for close cooperation with the central bank governor, Kazuo Ueda, to achieve a stable inflation target alongside wage growth. Support for her party (LDP) has exceeded 30% for the first time in four years, providing a strong mandate to implement the announced reforms. 2023-12: 2.3, 2024-01: 2.0, 2024-12: 2.4, 2026-01: 2.0 19.1% — growth in machinery orders in December „I hope the central bank will closely cooperate with the government to sustainably achieve the two percent inflation target, accompanied by wage growth.” — Sanae Takaichi Key Economic Events in Japan: — ; — ; — ; —

Mentioned People

  • Sanae Takaichi — Prime Minister of Japan, initiator of fiscal stimulus and strategic investment plans.
  • Kazuo Ueda — Governor of the Bank of Japan, responsible for the country's monetary policy.