By Max Sato

(MaceNews) – Here are the key Japanese economic events for the coming week.

Following the widely expected no change in the Bank of Japan’s policy stance last week, demand side data is expected to show lackluster but somewhat resilient consumer spending.

Economists didn’t wait to see June and second quarter household spending due on Aug. 8 to estimate how strong private consumption was in the preliminary GDP data for April-June (Aug. 15). They used data like supply-side consumption and demand-side indicators including household spending through May.

Japan’s gross domestic product is forecast to be nearly flat, up just 0.1% on quarter, or an annualized 0.4%, in the second quarter, at the peak of the fear that the protectionist U.S. trade policy was plunging the global economy into a tailspin, according to the median projection by 10 economists in a Mace News survey.

The sluggish Q2 growth would follow the economy’s first contraction in four quarters in January-March with a slight 0.04% dip (officially -0.0%), or an annualized -0.2%, which was in payback for a technical jump in net exports in the previous quarter. It was also due to flat consumption amid high costs of living and the uncertainty over global growth and inflation triggered by the trade war.

– Wednesday, Aug. 6

0830 JST (2330 GMT/1930 EDT Tuesday, Aug. 5) The Ministry of Health, Labour and Welfare releases June wages. The total monthly average cash earnings per regular employee is expected to have posted their 42nd straight year-on-year rise, up around 2.0% in nominal terms in June vs. +1.4% in May and +2.0% in April. The increase in May was supported by base wages, up 2.0%. By contrast, real wages are seen showing a sixth straight drop following a 2.6% dip the previous month.

– Thursday, Aug. 7

1400 JST (0500 GMT/0100 EDT Wednesday, Aug. 6) The Bank of Japan releases June, Q2 supply-side consumption activity index, which has a close correlation to revised GDP data. The index (excluding inbound tourism spending) dipped 0.3% on the month in May and was nearly flat (-0.0%) in April-May vs. the January-March quarter.

– Friday, Aug. 8

0830 JST (2330 GMT/1930 EDT Thursday, Aug. 7) The Ministry of Internal Affairs and Communications releases June and Q2 average household spending.

Mace News median forecasts: +3.1% y/y (range: -1.1% to +5.4%) vs. May +4.7%; -2.6% m/m (range: -4.4% to -0.1%) vs. May +4.6%

Japan’s real household spending is forecast to have risen a modest 3.1% on the year in June on eating out, groceries and air conditioners amid slightly easing inflation and a relentless heat wave. That would be a sixth y/y increase in 12 months following a 4.7% gain in May and a 0.1% slip in April.

The data is likely to show a pullback in vehicle purchases, a volatile factor, which surged in May to push up overall consumption. The supply of new vehicles has already recovered from suspended output and shipments at the Toyota Motor group in the quarter of 2024 over safety check scandals.

The stronger-than-expected gain in May was also backed by a continued post-pandemic pickup in eating out and a surge in demand for air conditioners amid an early arrival of summer heat and humidity. Those two factors likely led spending in June.

The annual inflation rate has eased slightly, thanks to government energy subsidies, but elevated processed food prices in the aftermath of protracted domestic rice supply shortages are keeping it high at around 3% and hurting consumer confidence and spending.

On the month, real average expenditures by households with two or more people are expected to post a seasonally adjusted 2.0% drop after rebounding 4.6% in May, plunging 1.8% in April and rising 0.4% in March.

– Friday, Aug. 8

0850 JST (2350 GMT/1950 EDT Thursday, Aug. 7) The Bank of Japan releases the summary of opinions expressed board members at their July 30-31 meeting at which the nine-member panel voted unanimously to maintain the target for the overnight interest rate at 0.5% for the fourth straight meeting after hiking it by 25 basis points (0.25 percentage point) in January amid uncertainty over trade rows.

The bank repeated that it will continue raising rates if growth and inflation evolve in line with its medium-term outlook but it is still in the process of normalizing its monetary policy stance from years of keeping short-term rates near zero percent.

In its quarterly Outlook Report, the board left its growth forecasts little changed for fiscal years 2025, 2026 and 2027 (ending in March 2028) while revising up its inflation outlook sharply for the current fiscal year and seeing tame price rises in fiscal 2025 and 2026 as projected in the April report.

The BOJ also noted that risks to its GDP outlook is skewed to the downside, as predicted in April, but said risks to its CPI projection is “generally balanced,” compared to the April statement that it was skewed to the downside.

The BOJ continues to expect Japan’s economy will settle around 2% inflation. “In the second half of the projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target, it said, repeating its previous report issued on May 1.

The board raised its median forecast for the core CPI (excluding fresh food) substantially to 2.7% for fiscal 2025 ending March 2026 from 2.2% projected in April but it largely reflects rising processed food prices triggered by protracted domestic rice supply shortages, Governor Kazuo Ueda told a news conference on July 31.

“It may take some time but we expect the inflation rate to start falling, so the upward revision this time alone will not affect our monetary policy,” he said.

On the impact of Trump tariffs, the governor said the board is concerned that profits among Japanese firms, particularly exporters, will decline and affect wages. BOJ officials will closely monitor the degree of such an impact, he said.

Ueda noted that the uncertainty over tariff rates has eased but it is still highly likely that the Trump administration will impose stiff tariffs, which makes it uncertain how the effects of those duties on imports to the key U.S. market will pan out. “I don’t think the fog will clear up all at once.”

Tokyo and Washington have agreed to lower the “reciprocal” tariff rate to 15% on most U.S. imports of Japanese goods including automobiles and auto parts (50% on iron and steel), down from President Trump’s original plan to slap 25% duties on Japan, but the figure is still much higher than the 2.5% rate imposed by the United States before the second Trump administration.

“The inflation rate has been moving above our outlook for some reason but I don’t think we are falling behind the curve, nor do I believe the risk of doing so is high,” Ueda told reporters.

The board revised up its core CPI forecasts only slightly to 1.8% for fiscal 2026 from its April projection and to 2.0% for fiscal 2027 from 1.9%.

Inflation in Japan has eased slightly but remains sticky at 3.3% in June amid elevated processed food prices, staying the second highest among the Group of Seven major economies after the UK’s 3.6%.

The BOJ is in the process of raising interest rates to normalize its overly accommodative policy stance but its pace has been only gradual because economic recovery has been lackluster and years of deflation have been replaced by high inflation, which was triggered by a spike in import costs, not by hotter demand. Therefore, further rate hikes by the BOJ would not be designed to cool off demand and bring inflation down toward its 2% price stability target.