Bank of Japan reviews economic and financial developments in December
The Bank of Japan's Policy Board discussed recent economic and financial developments in Japan and overseas at its December 18-19, 2025 meeting. Members assessed moderate global growth alongside persistent uncertainties and a recovering domestic economy.
Japan's economy recovers moderately, inflation at 3 percent
The Bank of Japan's Policy Board assessed Japan's economy as recovering moderately, despite some areas of weakness.
The outlook suggested moderate growth, influenced by trade policies affecting overseas economies and domestic corporate profits, though accommodative financial conditions were supportive.
Exports and industrial production remained largely flat, impacted by U.S. tariffs.
Business fixed investment continued its moderate increasing trend, driven by order backlogs and labor-saving efforts.
Private consumption showed resilience, supported by improved employment and income, though elevated food prices exerted downward pressure.
The year-on-year CPI increase, excluding fresh food, stood at around 3 percent recently, primarily due to food prices.
This rate was expected to decelerate towards the end of fiscal 2025 as food price effects wane and government energy measures take effect.
Global growth moderate amid trade policy uncertainties
Overseas economies grew moderately overall, with some weakness observed due to trade policies.
The U.S. economy maintained solid growth, while European economies remained relatively weak, and the Chinese economy decelerated, impacted by tariff increases and real estate adjustments.
High uncertainties persist regarding the global outlook, including trade policy impacts, AI-related demand, and China's economic developments.
In financial markets, the uncollateralized overnight call rate was around 0.5 percent.
Yields on 10-year Japanese government bonds (JGBs) rose significantly.
The yen depreciated against both the U.S. dollar and the euro, while U.S. and European long-term interest rates saw fluctuations influenced by policy rate cut expectations.
Cautious stance amid lingering uncertainties
The minutes reflect a Bank of Japan in a holding pattern, carefully observing both domestic and international economic signals.
While Japan's economy shows moderate recovery, persistent global uncertainties, particularly from trade policies and China's slowdown, temper any immediate optimism.
The central bank's continued accommodative stance, despite 3 percent inflation, underscores its cautious approach, prioritizing stability over premature policy shifts.