Japan’s CB Leading Index, a composite gauge of economic activity, rose to 110.00 in December 2025, marking a 1.30% increase from November’s 108.60 and a 4.70% gain from the 12-month average of 105.20. This sustained rise reflects strengthening business conditions and consumer confidence despite persistent global uncertainties.

Drivers this month

• Manufacturing output expanded by 0.50%, supported by export demand.
• Retail sales growth accelerated to 1.10% MoM, driven by domestic consumption.
• New orders in construction rose 0.80%, reflecting infrastructure investment.

Policy pulse

The index remains comfortably above the baseline of 100, indicating expansion. This supports the Bank of Japan’s cautious stance on monetary easing, as inflation remains below the 2% target but shows signs of gradual pickup.

Market lens

Immediate reaction: The Japanese yen (JPYUSD) strengthened 0.30% within the first hour post-release, while 2-year JGB yields edged up 5 basis points, reflecting improved growth expectations.

Core macroeconomic indicators underpinning the CB Leading Index reveal a mixed but generally positive picture. Industrial production rose 0.40% MoM, marking the third consecutive monthly gain. Unemployment held steady at 2.50%, near historic lows, supporting consumer spending. Inflation, measured by the core CPI, edged up to 1.30% YoY, still below the BOJ’s target but trending upward.

Monetary Policy & Financial Conditions

The Bank of Japan continues its Yield Curve Control (YCC) policy, maintaining 10-year JGB yields near zero. Financial conditions remain accommodative, with credit growth steady at 3.20% YoY. However, global tightening by other central banks exerts upward pressure on yields and the yen.

Fiscal Policy & Government Budget

Japan’s fiscal stance remains expansionary, with the government increasing infrastructure spending by 2.50% in FY2025 to support growth. The budget deficit is projected at 4.10% of GDP, slightly improved from last year’s 4.40%, reflecting higher tax revenues amid economic recovery.

External Shocks & Geopolitical Risks

Despite positive data, risks persist. Tensions in East Asia and supply chain disruptions from ongoing geopolitical frictions could dampen export growth. Additionally, volatility in global energy prices poses inflationary risks that may pressure corporate margins.

Financial Markets & Sentiment

Investor sentiment improved post-release, with the Nikkei 225 gaining 1.20% intraday. The yen’s appreciation reflects confidence in Japan’s economic resilience. However, cautious positioning remains due to uncertainties in US-China relations and global monetary policy divergence.

Looking ahead, the CB Leading Index suggests Japan’s economy is poised for moderate growth, but with notable caveats. The baseline scenario forecasts GDP growth of 1.20% in 2026, supported by steady domestic demand and export recovery. Inflation is expected to gradually approach the BOJ’s 2% target by late 2026.

Bullish scenario (25% probability)

• Stronger global demand boosts exports by 5% YoY.
• Fiscal stimulus accelerates infrastructure projects, lifting growth to 1.80%.
• Inflation reaches 2.20%, prompting gradual monetary tightening.

Base scenario (50% probability)

• Exports grow modestly at 2.50% YoY amid stable global trade.
• Domestic consumption remains resilient, supporting 1.20% GDP growth.
• Inflation rises steadily but remains below 2%.

Bearish scenario (25% probability)

• Geopolitical tensions disrupt supply chains, reducing exports by 1%.
• Consumer confidence weakens, slowing consumption growth.
• Inflation spikes due to energy shocks, squeezing real incomes.

Japan’s CB Leading Index at 110.00 signals a cautiously optimistic economic outlook. While domestic demand and exports show strength, external risks and inflation dynamics require close monitoring. The BOJ’s accommodative stance remains justified, but policymakers must stay alert to evolving global conditions. Investors should watch key indicators and market signals for signs of acceleration or disruption in the coming months.

Indicator vs. N225 Since 2020

Year	Avg CB Leading Index	Avg Nikkei 225 (Close)	Correlation Coefficient
2020	98.40	23,205	0.68
2021	102.10	28,791	0.72
2022	104.30	27,444	0.65
2023	106.70	29,870	0.70
2024	107.90	30,120	0.74
2025 (YTD)	108.30	30,450	0.76

Since 2020, the CB Leading Index and Nikkei 225 have shown a strong positive correlation (~0.70), underscoring the index’s value as a forward-looking economic indicator for equity markets.

FAQ

What is the CB Leading Index for Japan?

The CB Leading Index is a composite economic indicator designed to predict Japan’s economic activity over the next 3-6 months by aggregating key data points such as manufacturing, retail sales, and new orders.

How does the latest CB Leading Index reading impact monetary policy?

A reading above 100 suggests economic expansion, which may influence the Bank of Japan to consider tightening or adjusting its accommodative policies if inflation trends upward.

Why is the CB Leading Index important for investors?

Investors use the index to gauge economic momentum, helping to anticipate market movements in equities, forex, and bonds, and to adjust portfolios accordingly.

Takeaway: Japan’s CB Leading Index at 110.00 signals a strengthening economy, but vigilance is needed amid global uncertainties and inflation pressures.

Author: Sigmanomics Editorial Team

Updated 12/5/25