Geographic & Temporal Scope: The latest retail sales data covers Japan for December 2025, released on January 30, 2026. This reading is compared against November 2025 and prior months for context.

Japan’s retail sales fell by 2.00% MoM in December 2025, a dramatic reversal from November’s robust 1.60% gain. The December print was far below consensus estimates of 0.30% and marks the largest monthly contraction since August 2025’s -1.60% reading. Over the past 12 months, the average monthly change was approximately -0.08%, highlighting the outsized nature of December’s drop.

Drivers this month

• Broad-based weakness in consumer goods, especially apparel and electronics
• Unseasonably warm weather dampening winter goods demand
• Lingering effects of real wage stagnation and higher utility costs

Policy pulse

The Bank of Japan (BOJ) has been cautious in normalizing policy. December’s sharp retail sales contraction will likely reinforce the BOJ’s dovish stance, as inflation remains above target but demand-side risks intensify. Fiscal authorities may also consider targeted support if weakness persists.

Market lens

Immediate reaction: USDJPY spiked 0.40% higher, Nikkei 225 futures dipped 0.70% in the first hour after the print. The yen weakened as traders priced in a lower probability of near-term BOJ tightening, while equity markets reflected concerns over domestic consumption.

Japan’s retail sales trajectory in 2025 has been volatile. December’s -2.00% MoM drop follows a strong November (1.60%) and a moderate October (0.30%). For additional context:

• September 2025: -1.10% MoM
• August 2025: -1.60% MoM
• 12-month average (Jan–Dec 2025): -0.08% MoM

Year-on-year, December 2025 retail sales were also below December 2024’s level, underscoring persistent consumer headwinds. The data suggests that Japan’s household sector remains vulnerable to both cyclical and structural pressures.

Drivers this month

• Real wage growth remains negative, limiting discretionary spending
• Higher food and energy prices eroding purchasing power
• Delayed impact of government stimulus fading

Policy pulse

With inflation still above the BOJ’s 2% target but consumer demand faltering, policymakers face a dilemma. The government’s budget for FY2026 includes modest support for low-income households, but further measures may be needed if retail weakness persists.

Market lens

Immediate reaction: JPY crosses broadly sold, 2-year JGB yields fell 3 bps. Market participants see less urgency for BOJ normalization, and breakeven inflation rates edged lower.

Looking ahead, Japan’s retail sales outlook is clouded by persistent real wage declines, demographic headwinds, and global uncertainty. The December collapse raises the risk of a negative Q4 GDP print and may prompt both monetary and fiscal authorities to reassess their stance.

• Bullish scenario (20%): Retail sales rebound in Q1 2026 as wage negotiations deliver modest gains and consumer sentiment stabilizes. BOJ maintains policy, yen steadies, equities recover.
• Base scenario (60%): Retail sales remain volatile, averaging near zero growth in early 2026. BOJ delays normalization, government introduces targeted support. Yen stays soft, equities range-bound.
• Bearish scenario (20%): Retail sales contract further, triggering a technical recession. BOJ signals readiness for additional easing, fiscal stimulus ramps up. Yen weakens, risk assets underperform.

Drivers this month

• External shocks: China slowdown, global tech demand fluctuations
• Geopolitical risks: Energy price volatility, regional tensions
• Structural trends: Aging population, digitalization of retail

Policy pulse

BOJ’s next moves hinge on incoming wage and inflation data. Fiscal authorities may prioritize consumer support in the FY2026 budget. The government’s debt trajectory remains a constraint on large-scale stimulus.

Market lens

Immediate reaction: JPY volatility elevated, equity risk premiums widened. Investors are recalibrating expectations for Japan’s growth and policy outlook, with safe-haven flows into JGBs and select defensive stocks.

December 2025’s retail sales collapse is a stark warning about the fragility of Japan’s consumer-led recovery. The outsized MoM contraction, far below expectations and historical averages, will test policymakers’ resolve and market confidence in early 2026. While upside risks exist if wage growth and sentiment improve, the balance of risks is tilted to the downside amid persistent structural and cyclical headwinds.

Data source: Sigmanomics database, cross-verified with official METI releases. Methodology: Seasonally adjusted, MoM percentage change, headline retail sales. All figures in JPY terms.