The December 2025 Coincident Index for Japan, published on December 5, 2025, registered at 115.40, up from 114.60 in November and well above the consensus estimate of 114.90. This index, sourced from the Sigmanomics database, aggregates key economic indicators to reflect current economic conditions. The rise indicates a modest acceleration in economic activity after a period of stagnation in late Q3 and early Q4.

Geographic & Temporal Scope

The Coincident Index covers Japan’s nationwide economic activity, integrating data from August through early December 2025. This period captures the post-summer recovery phase and early winter consumption trends. Historically, the index peaked at 116.80 in August 2025 before softening to a low of 112.80 in late October, reflecting seasonal and external pressures.

Core Macroeconomic Indicators

• Industrial production and retail sales have shown steady improvement since October.
• Employment rates remain stable, with a slight uptick in service sector hiring.
• Consumer confidence indices have rebounded from a 6-month low.

Japan’s foundational economic indicators underpin the recent Coincident Index rise. Industrial output increased by 1.20% MoM in November, reversing a 0.80% decline in October. Retail sales expanded 0.90% MoM, supported by holiday season demand. Unemployment held steady at 2.50%, near historic lows, while wage growth remains subdued at 1.10% YoY.

Monetary Policy & Financial Conditions

The Bank of Japan (BoJ) continues its ultra-loose monetary stance, maintaining short-term rates near zero and yield curve control. Inflation remains below the 2% target at 1.30%, allowing accommodative policy to persist. Financial conditions have eased slightly, with the 10-year JGB yield stable around 0.25%. The Japanese yen weakened modestly against the USD, reflecting global risk-off sentiment.

Fiscal Policy & Government Budget

Fiscal stimulus measures, including infrastructure spending and targeted subsidies, have bolstered domestic demand. The government’s budget deficit remains elevated at 6.50% of GDP but is deemed sustainable given low borrowing costs. Recent policy announcements focus on innovation and green energy investments, aiming to support medium-term growth.

Drivers this month

• Industrial production contributed 0.15 points to the index.
• Retail sales added 0.12 points, boosted by holiday demand.
• Employment and wage growth combined for 0.08 points.
• External trade remained a drag, subtracting -0.05 points due to weaker exports.

Policy pulse

The index remains consistent with the BoJ’s inflation target trajectory, supporting continued accommodative policy. The 1.30% inflation rate is below target but trending upward, suggesting room for gradual policy normalization in 2026.

Market lens

Immediate reaction: USD/JPY rose 0.30% in the first hour post-release, reflecting improved economic sentiment. The 2-year JGB yield edged up 3 basis points, while breakeven inflation rates held steady near 1.40%.

Looking ahead, Japan’s economic trajectory depends on several factors. The baseline scenario (60% probability) anticipates steady growth with the Coincident Index rising modestly to 116.00 by Q1 2026, driven by domestic consumption and stable financial conditions.

Bullish scenario (20%)

• Stronger global demand and export recovery push the index above 117.50.
• Inflation accelerates toward 2%, prompting gradual BoJ tightening.
• Fiscal stimulus amplifies growth through infrastructure and innovation.

Bearish scenario (20%)

• Geopolitical tensions disrupt supply chains, dragging the index below 113.00.
• Global financial volatility triggers yen appreciation, hurting exports.
• Domestic consumption weakens due to demographic headwinds and wage stagnation.

Structural trends such as an aging population and slow productivity gains remain long-term challenges. However, ongoing reforms in technology and green energy sectors offer growth potential beyond cyclical fluctuations.

Japan’s December 2025 Coincident Index print at 115.40 signals moderate economic resilience amid a complex global backdrop. While the recovery is uneven, supportive monetary and fiscal policies provide a buffer against external shocks. Investors and policymakers should monitor inflation trends, geopolitical risks, and structural reforms closely to gauge the sustainability of growth.

Overall, the data from the Sigmanomics database suggests cautious optimism for Japan’s near-term economic outlook, balanced by persistent downside risks and long-run demographic challenges.

Insight: Coincident Index vs. USDJPY Since 2020

Since 2020, Japan’s Coincident Index and USDJPY have shown a moderate positive correlation (r ≈ 0.45). Periods of rising economic activity often coincide with yen depreciation, reflecting improved risk appetite and export growth. For example, the 2023 rebound in the index aligned with USDJPY climbing from 110 to 115. This relationship underscores the importance of economic data in forex market dynamics.

Takeaway: Japan’s Coincident Index rise to 115.40 in December 2025 signals cautious economic recovery, supported by policy but shadowed by external and structural risks.