Support
Japan data beats but yen still stalls as dollar heads for worst week since mid-year
Stronger Japanese industrial output and retail sales failed to lift the yen, as inflation remains skewed to food and markets keep betting on a December Fed cut. The dollar is set for its weakest week since mid-year, with risk assets in charge and policy clarity still a few key data prints away.
Tokyo core CPI steady at 2.8% y/y; food drives the heat
Industrial output +1.4% m/m on autos; retail sales +1.7% y/y
Yen lacks traction; market still sees a cautious, gradual BoJ
Dollar on track for its worst week since mid-year; December cut ~85%
Japan: firmer data, muted currency response
Japan’s latest releases surprised to the upside. Industrial production rose 1.4% m/m in October (vs. -0.6% expected), led by a 6.6% jump in motor vehicles as tariff uncertainty eased and supply chains normalized. Retail sales advanced 1.7% y/y (vs. 0.8% expected), pointing to steadier household demand than feared.
Tokyo inflation showed little moderation in November. Core CPI and core-core CPI held at 2.8% y/y; headline eased a tenth to 2.7%. The composition still leans heavily on food—rice (+38.5% y/y), coffee beans (+63.4%), and chocolate (+32.5%)—while services inflation remained contained at 1.5% y/y. That mix supports the view that underlying, broad-based price momentum isn’t yet “well anchored.”
Forward signals from industry are softer. METI’s manufacturer survey points to output declines of -1.2% in November and -2.0% in December. The ministry kept its assessment that production “fluctuates indecisively,” reflecting external uncertainty.
Policy read-through: gradualism stays the base case
The data strengthen the narrative that downside growth risks are easing, giving the central bank a bit more room to continue a slow normalization path without endangering the recovery. Even so, the inflation mix and patchy forward output guidance argue for caution. Markets retain a base case of a small hike in January, with low confidence given the sensitivity to global conditions and domestic politics.
FX: Yen can’t catch a bid; dollar drifts lower
Despite better data, the yen underperformed as rate-differential dynamics and a still-measured policy path dominate. The dollar, meanwhile, remains under pressure and is heading for its worst week since mid-year. Futures pricing implies roughly an 85% chance of a 25 bp Fed cut in December. Beyond that, curves are less certain—odds are near 50% that policy holds through Q1, framing December as a risk-management move rather than the start of an aggressive cycle.
With key U.S. releases delayed by the shutdown, visibility on 2026 remains limited. The fog should begin to lift around the November nonfarm payrolls (December 16) and CPI (December 18), which will reset the labor-inflation narrative into year-end.
