My latest video, discussing the BOJ and the outlook for the JPY.

The post-August rise in PPI continued in November, with one driver being the JPY-driven rebound in import prices. All told, upstream price pressures remain firm, and suggest that CPI isn't likely to ease much over the next 6M.

The supplementary budget looks big, but this year's fiscal deficit is still budgeted to narrow. Gross debt is high, but the government's net liabilities have fallen. Interest rates have risen, but before Takaichi took office, net annual interest payments by the government had fallen to near zero.

A few releases today – October wages and CA, November Economy Watchers survey, and Q3 revised GDP. The overall picture is mixed, though the acceleration in inflation and drop in real wages into early 2025 has now stabilised, and that is allowing an improvement in household sentiment.

The tone of governor Ueda's speech today suggests a rate hike is close. He claims that risks to the US are receding, identifies five recent positive wage developments, and with firms' price and wage behaviour changing, argues that exchange rate changes are more likely to affect prices.

Headline SPPI inflation was stable in October, but weak for high labour-intensive sectors, while part-time wages were strong, likely on the back of the minimum wage hike. That's an unclear picture. But right now, with the JPY so weak, the BOJ will focus more on headline CPI than these messy details.

The BOJ's base case has been that tariffs would slow inflation and growth. Today's data – November flash PMIs, and October trade and CPI data – give no indication that such slowdowns are occurring.

The gap between import prices and PPI in the October data illustrates the sort of pent-up inflationary pressure in Japan that is likely to be exposed if the JPY remains so weak. Today's data also show a decent rise in auto export prices, but to a level that is still 6% below the pre-tariff level.

The sharp recovery in sentiment in the EW survey continued in October. The improvement is broad-based, affecting both corporates and households. That shows a lessening of the tariff and inflation shocks of 1H25, and should be reflected in the BOJ becoming more optimistic about the outlook.