– Diet to Elect Prime Minister after ruling LDP Lost its Small Coalition Partner
(MaceNews) – Here are the key Japanese economic and political events for the coming week.
Ahead of the Bank of Japan’s policy meeting on Oct. 29-30, one of the two board members who have called for a further rate hike will share his views on the growth and inflation outlook as well as what the central bank should do as part of its gradual normalization process. Both members hail from the financial industry, which in the past has slammed the bank’s zero to negative interest rates policy that squeezed lenders’ profit margins.
The latest CPI data is expected to show an uptick in consumer inflation to around 3% after easing in recent months, but going forward, the annual inflation rate should decelerate toward the BOJ’s 2% price stability target as the price boosting impact of protracted rice shortages has been waning and the base effects of energy subsidies fizzle out.
The September trade data may record a rebound in export values, backed by steady recovery in Europe but the scar from stiff U.S. tariffs continues to show in the auto and metals sectors. The focus is on seasonally adjusted real exports for the July-September calculated by the BOJ, which are set to indicate sluggish external demand that bodes ill for the Q3 GDP data due next month.
On the political front, Sanae Takaichi, the embattled new leader of the ruling conservative Liberal Democratic Party, is likely to be elected Prime Minister by her fellow lawmakers in both chambers of the Diet. There is only a remote possibility that the politician with right-wing views on Japan’s wartime past will fail to win most votes in parliament now that the conservative Japan Innovation Party plans to support the LDP. Komeito left the ruling coalition, blaming the LDP’s slow response to its request to clean up money politics.
– Monday, Oct. 20
1250 JST (0350 GMT Monday, Oct. 20/2350 EDT Sunday, Oct. 19) Bank of Japan board member Hajime Takata, a former Mizuho Securities executive, delivers a speech to business leaders in Hiroshima, western Japan. He will also hold a news conference to discuss economic conditions and monetary policy.
At the bank’s last meeting on Sept. 18-19, Takata and Naoki Tamura, both with financial industry background, called for raising the target for the overnight interest rate by 25 basis points (0.25 percentage point) to 0.75%. The nine-member board decided in a 7 to 2 vote to stand pat for the fifth straight meeting after hiking the rate by 25 basis points in January.
Takata argued that the bank’s 2% price stability target had been largely met. Tamura, formerly with SMBC, urged the central bank to raise the policy rate closer to what is considered to be neutral to economic activity amid rising inflation risk.
In response, at a post-meeting news conference on Sept. 19, Governor Kazuo Ueda repeated his view that underlying inflation is “still slightly under 2%” but that it is “getting closer” to the bank’s target. On Tamura’s proposal, Ueda agreed the upside risk to price rises “does exist as one of the risks” but stressed, “In my view, since there is a possibility that the effects of the U.S. trade policy among other things will emerge further, I think we have to keep in mind that there are downside risks to the economy and through that (channel), there are downside risks to prices.”
– Tuesday Oct. 21
Members of parliament vote to elect the next prime minister at lower and upper house sessions. Prime Minister Shigeru Ishiba has stepped down to take the blame for leading the ruling coalition to crushing defeats in general elections, first in the all-important lower house in October and then in the upper house in July.
– Tuesday Oct. 21
1320 JST (0420 GMT/0020 EDT Tuesday, Oct. 21) Bank of Japan Deputy Governor Ryozo Himino, formerly with the government watchdog Financial Services Agency, speaks before political and business leaders at the 2025 GZERO Summit Japan.
– Wednesday, Oct. 22
0850 JST (2350 GMT/1950 EDT Tuesday, Oct. 21) The Ministry of Finance releases September trade.
Mace News median: exports +4.6% y/y (range: +2.7% to+5.7%) vs. Aug -0.1%; imports +1.7% y/y (range: -1.7% to +5.0%) vs. Aug -5.2%; trade deficit ¥65.10 billion (range: a deficit of ¥261.40 billion to a surplus of ¥89.40 billion vs. a revised ¥242.78 billion deficit in August 2025; ¥306.09 billion deficit in September 2024
Japanese export values are forecast to post their first year-on-year rise in five months in September, up 4.6%, after being nearly flat (-0.1%) in August and slipping 2.6% in July, thanks to the recent economic recovery in Europe and solid demand from Asia, led by Taiwan, Hong Kong and Vietnam. The rebound in exports is seen led by ships, computer chips and raw materials, judging from the official data for the first 20 days of September. Those of automobiles as well as iron and steel continued falling.
The late emergence of a silver lining in external demand for the third quarter is still clouded by sluggish demand from the key U.S. market as the protectionist trade policy under the Trump administration targeting the auto and metals industries continues to bite and the Chinese economic recovery remains wobbly.
Trump tariffs forced Japanese carmakers to slash the prices for U.S. customers, basically covering high import costs and thus protecting their market share in the world’s biggest economy. That worked initially but the August trade data showed the volumes of Japanese exports to the world fell for first time in five months, causing jitters.
Import values are expected to rebound a slight 1.7% for the first rise in three months and the fourth this year after slumping 5.2% in August and 7.4% in July. The increase is driven by aircraft from the United States and computers (with the latest Windows 11 operating system) and smartphones from Asia, as seen in the previous month, which is partly offset by continued declines in prices for crude oil, coal and liquefied natural gas.
Combining those factors, the trade balance is forecast to post a small deficit of ¥65.10 billion following a revised ¥242.78 billion deficit in August and a ¥306.09 billion deficit in September 2024.
– Wednesday, Oct. 22
1400 JST (0500 GMT/0100 EDT Wednesday, Oct. 22) The Bank of Japan releases real export, import indexes based on the MOF’s September trade data. The seasonally adjusted real export index edged up 0.3% on the month in August after slumping 4.4% in July. The index in the July-August period dipped 2.0% on quarter after slipping 0.1% in April-June, indicating that external demand was in the third quarter.
Japan’s preliminary Q3 GDP, due on Nov. 17, is expected to post its first contraction in six quarters, hit by the drag from the protectionist U.S. trade policy,
After having expanding 0.5% on quarter, or an annualized 2.2% in the second quarter.
– Thursday, Oct. 23
1500 JST (0600 GMT/0200 EDT Thursday, Oct. 23) The Bank of Japan releases the twice-annual Financial System Report, in which the bank has been saying the domestic financial system has been “stable on the whole” despite heightened global uncertainty. This overview is unlikely to change in the October report.
In its April report, the bank urged financial institutions to be “vigilant against the materialization of various risks” in the face of the global trade war triggered by Trump tariffs and lingering geopolitical risks. On higher property prices that push up households’ net worth, the bank warned that “the situation may change if a recession causes a simultaneous decline in incomes and housing prices.”
– Friday, Oct. 24
0830 JST (2330 GMT/1930 EDT Thursday, Oct. 24) The Ministry of Internal Affairs and Communications releases September CPI.
Mace News median: total CPI +2.9% y/y (range: +2.6% to +3.0%) vs. August +2.7%; core CPI (ex-fresh food) +3.0% y/y (range: +2.6% to +3.0%) vs. August +2.7%; core-core CPI (ex-fresh food, energy) +3.1% y/y (range +3.0% to +3.3%) vs. August +3.3%
Consumer inflation in Japan is expected to show a technical uptick to around 3% in two key measures in September after three months of easing, led by a year-on-year increase in overall energy costs which is triggered by a sharp slowdown in subsidized electricity price gains in September 2024.
The core reading (excluding fresh food) is forecast to post a 3.0% rise on year in September after its annual rate decelerated to 2.7% in August from 3.1% in July from 3.3% in June and the recent peak of 3.7% in May which had reflected the impact of summertime utility subsidies. The year-on-year rise in the total CPI is seen at 2.9%, up from 2.7% the previous month. The underlying inflation measured by the core-core CPI (excluding fresh food and energy) is estimated at 3.1% after having slowed to 3.3% in August from 3.4% in July.
In the bigger picture, however, there are two opposing forces in place. The year-on-year rise in processed food prices has been easing after an earlier spike on protracted domestic rice shortages caused by government’s outdated policy of limiting rice production in hopes of shoring up the income of farmers, a key voter based for conservative politicians. Rebounds of government release of its reserves of older rice and shipments of fresh crops are estimated to have led regular prices of the national staple to about a 50% rise on year, slowing from over 100% (double) during their peak.
On the other hand, companies have been passing higher labor and import costs on to consumers in light of widespread labor shortages and the resulting need to attract qualified workers with higher wages and benefits as well as better working conditions. The yen has also given up its earlier, slight gains against the dollar and other currencies in the wake of a domestic political crisis. A firmer yen could lower import costs.
Also little changed in the trend is that the current consumer price rises are not fully backed by domestic demand, although wage-heavy services price hikes have been playing catch-up with gains in goods prices.
This means that if the majority of the Bank of Japan’s nine board members consider a further hike from the current, still low policy rate of 0.5%, it would be their careful process of normalizing its accommodative policy stance that had kept short-term interest rates in a range of zero to slightly negative until March 2024.
The BOJ is expected to stand pat at its Oct. 29-30 meeting. Many economists expect the bank to take action in December at the earliest and more likely in the early parts of 2025. It last raised the target for the overnight interest rate by 25 basis points (0.25 percentage point) in January 2025.