Yen Appreciation, Falling Stock Prices, Stagnant Incomes, and Uncertainty in the Overseas Economy

「Meanwhile, the effects of inflation caused by persistently high energy and raw-material prices continued, with rising cost burdens and increasingly severe labor shortages becoming constraints on corporate management. The changing financial environment, including higher interest rates accompanying the normalization of monetary policy and foreign-exchange volatility, also required close attention. Overseas economies remained clouded by uncertainty because of concerns over a slowdown in the U.S. economy, a slower recovery in China, and uncertainty surrounding trade policy, as well as the prolonged situation in Ukraine and the emergence of geopolitical risks in the Middle East.」

「Meanwhile, heightened uncertainty over the outlook for the U.S. economy and monetary policy tightening by the Bank of Japan led to a sharp, temporary appreciation of the yen, while significant volatility in the stock market highlighted the instability of financial markets. In Japan, high prices continued to weigh heavily on corporate earnings. Although cost pressures have begun to ease somewhat, the earnings environment remains challenging. Particularly among small and medium-sized companies, labor shortages, high prices, and an increase in corporate bankruptcies as COVID-19-related loans reach maturity have weighed on the economy. Uncertainty stemming from overseas factors, including the situation in Ukraine and geopolitical risks in the Middle East, also continued.」

「Japan's economy in fiscal 2025 could fluctuate significantly depending on the extent to which the high-tariff policies imposed by the Trump administration affect global free trade. If reciprocal tariffs are implemented worldwide, global trade activity could decline and supply chains could be disrupted, while inflation caused by higher import costs could increase the burden on consumers and adversely affect the domestic economy.」

「Meanwhile, the market became unsettled as the Nikkei Stock Average fluctuated sharply when the yen appreciated rapidly owing to uncertainty over the outlook for the US economy and monetary tightening by the Bank of Japan. Over these three months, the yen appreciated by approximately ¥20 against the US dollar, raising concerns over the impact of sharp exchange rate movements on the domestic economy. In addition, corporate bankruptcies due to the arrival of repayment deadlines for COVID-19 loans were increasing, and we believe it is necessary to monitor developments in the domestic economy in light of exchange rate fluctuations and rising prices.」

「Meanwhile, events raising concerns over the outlook for the business environment surrounding the company increased, including the protracted invasion of Ukraine by Russia, the conflict between Israel and Palestine that began in October 2023, and the Noto Peninsula earthquake in Japan in January 2024.」

「Meanwhile, concerns creating uncertainty over the outlook for the global economy increased, including the protracted invasion of Ukraine by Russia and the outbreak of conflict between Israel and Palestine in October. In addition, corporate bankruptcies due to the arrival of repayment deadlines for COVID-19 loans were increasing, and we believe it is necessary to monitor developments in the domestic economy in light of exchange rate fluctuations and rising prices.」

「During the six months ended September 30, risks associated with the spread of COVID-19 subsided and the trend toward normalization of economic activity continued. Meanwhile, although the US and European central banks both raised interest rates in July, the Bank of Japan made no major change to its monetary policy, contributing to the subsequent sharp depreciation of the yen and increasing uncertainty over the business environment. Russia's invasion of Ukraine, which began in February 2022, showed signs of becoming protracted and, together with economic sanctions imposed by the United States and Europe, had a significant impact on the global economy. In addition, corporate bankruptcies due to the arrival of repayment deadlines for COVID-19 loans were increasing, and we believe it is necessary to monitor developments in the domestic economy in light of exchange rate fluctuations and rising prices.」

「During the first quarter of the current fiscal year, risks associated with the spread of COVID-19 subsided as its classification under Japan's infectious disease law was moved to Category 5 in May 2023, and the trend toward normalization of economic activity continued. The Nikkei Stock Average reached a new 33-year high, last seen in March 1990, as the Bank of Japan maintained its monetary easing policy after the change in governor and overseas investors' attention to the strong performance of Japanese companies increased. Meanwhile, Russia's invasion of Ukraine, which began in February 2022, showed signs of becoming protracted and, together with economic sanctions imposed by the United States and Europe, had a significant impact on the global economy. In addition, corporate bankruptcies due to the arrival of repayment deadlines for COVID-19 loans were increasing, and we believe it is necessary to monitor developments in the domestic economy in light of exchange rate fluctuations and rising prices.」

「During the fiscal year, Japan's economy saw the resumption of economic activity toward a post-COVID recovery, despite the impact of COVID-19. Meanwhile, Russia's invasion of Ukraine, which began in February 2022, showed signs of becoming protracted, driving up commodity prices including crude oil and grain. Central banks worldwide were also pressed to respond to inflation with monetary tightening, including interest rate hikes, increasing uncertainty over the outlook. In December, the Bank of Japan expanded the permitted fluctuation range for long-term interest rates under yield curve control to 0.5%, creating developments that suggested a revision of monetary easing in Japan as well.」

「During the nine months ended December 31, Japan's economy continued to require infection-control measures, including in response to the eighth wave of COVID-19 from November, but the trend toward normalization of economic activity continued. Meanwhile, Russia's invasion of Ukraine, which was showing signs of becoming protracted, drove up commodity prices, including crude oil and grain, and accelerated monetary tightening in advanced economies. As the difference from Japan, which continued monetary easing, became increasingly pronounced, the yen depreciated to the ¥150 range in October for the first time since 1990, and the Bank of Japan decided at its December monetary policy meeting to review the operation of yield curve control. In light of these unstable domestic and overseas developments, we believe it is necessary to continue closely monitoring the outlook for economic activity.」

「During the six months ended September 30, Japan's economy continued to require infection-control measures, including in response to the seventh wave of COVID-19, which peaked in August. However, the rate of severe cases declined with each wave, and the trend toward normalization of economic activity continued. Meanwhile, Russia's invasion of Ukraine, which was showing signs of becoming protracted, drove up commodity prices, including crude oil and grain, and accelerated monetary tightening by advanced economies to combat inflation. As the difference between Japan, which continued monetary easing, and other countries became increasingly pronounced, the US Federal Reserve raised interest rates and the European Central Bank also raised rates in July for the first time in 11 years, causing the yen to depreciate further.」

「During the first quarter of the current fiscal year, economic activity gradually began to resume as COVID-19 subsided following the lifting of quasi-emergency measures in March 2022. Meanwhile, Russia's invasion of Ukraine drove up commodity prices, including crude oil and grain, accelerated monetary tightening by advanced economies to combat inflation, and caused the yen to depreciate sharply. In addition, signs of another spread of COVID-19 emerged following the appearance of new variants from July, and in light of these domestic and overseas developments, we believe it is necessary to continue closely monitoring the outlook for economic activity.」

「During the nine months ended December 31, the impact of reduced automobile production due to semiconductor shortages remained, but after the fourth state of emergency was lifted at the end of September, infections subsided and signs of resumed economic activity began to emerge, particularly in the food service and tourism industries. However, the Omicron variant detected in South Africa in November spread rapidly in Japan from the beginning of the year, and we believe it is necessary to continue closely monitoring developments.」

「During the six months ended September 30, Japan's economy continued to be affected by the spread of COVID-19, with the fourth state of emergency declared in July extended through the end of September and its coverage expanded. In addition to the continued severe conditions, particularly in the food service and tourism industries, the impact spread across the entire industrial sector, including reduced automobile production due to semiconductor shortages.」

「During the first quarter of the current fiscal year, Japan's economy remained in a severe condition, particularly in the food service and tourism industries, as it continued to be affected by the spread of COVID-19, including the declaration and lifting of the third state of emergency. Although vaccination efforts and the development of ICT infrastructure for the “new normal” progressed, they did not prevent infections from resurging domestically and overseas due to variant strains. There were also concerns that the Tokyo Olympic and Paralympic Games could accelerate the spread of COVID-19, and we believe it is necessary to continue closely monitoring the outlook for economic activity.」

「During the fiscal year, Japan's economy had begun to show signs of a recovery following the lifting of the state of emergency in May 2020 and various government measures against COVID-19. However, when a third wave of infections led to the issuance of another state of emergency, uncertainty over the outlook increased sharply again.」

「During the nine months ended December 31, signs of a recovery had begun to emerge in Japan as a result of government measures against COVID-19, including support for small and medium-sized enterprises and Go To Travel. However, as domestic infections resurged toward year-end, uncertainty over the outlook increased again.」

「During the six months ended September 30, Japan's economy remained in a severe condition owing to the impact of COVID-19, but signs of a recovery began to emerge as a result of government measures, including support for small and medium-sized enterprises, special fixed-sum benefits and Go To Travel, as well as the spread of infection-control measures in daily life. However, the outlook remained uncertain as COVID-19 resurged overseas, particularly in Europe, and we believe it is necessary to continue closely monitoring the domestic recovery.」

「During the first quarter of the current fiscal year, Japan's economy deteriorated rapidly in both business sentiment and actual conditions following the declaration of a state of emergency in response to the spread of COVID-19.」

「During the nine months ended December 31, Japan's economy continued on a gradual expansionary trend, supported by investment in labor-saving measures to address labor shortages, domestic capital investment centered in major metropolitan areas, and last-minute demand ahead of the consumption tax increase in October. Numerous uncertainties could significantly affect the domestic economy, including the outlook for US-China trade friction, the UK's departure from the EU and monetary policy in major countries. We believe it is necessary to closely monitor developments going forward.」

「During the six months ended September 30, Japan's economy continued on a gradual expansionary trend. Although exports of production equipment to China declined owing to the impact of US-China trade friction, domestic capital investment to meet demand for labor-saving and automation, together with last-minute demand ahead of the consumption tax increase, supported the economy. Numerous uncertainties could significantly affect the domestic economy, including the outlook for US-China trade friction and monetary policy in the United States and Europe. We believe it is necessary to closely monitor developments going forward.」

「During the first quarter of the current fiscal year, Japan's economy continued on a gradual expansionary trend, supported by increased capital investment and stable interest rates, although companies' business confidence remained cautious, particularly in manufacturing. Numerous uncertainties could significantly affect the domestic economy, including trade issues such as US-China trade friction and the direction of US monetary policy. We believe it is necessary to closely monitor developments going forward.」

「Since the beginning of the year, a succession of uncertainties that could significantly affect the domestic economy has emerged, including the increasingly evident slowdown in China's economy due to the impact of US-China trade friction, stagnation in Europe's economy amid the UK's departure-from-the-EU issue, and the sharp retreat from normalization of US monetary policy. We believe it is necessary to closely monitor developments going forward.」

「During the nine months ended December 31, Japan's economy continued on a gradual expansionary trend, with a senior government official suggesting that the current expansion may have matched the postwar record of the Izanami boom. However, the Nikkei Average, which reached a 27-year high in early October, fell sharply amid concerns over US-China trade friction and US interest rate hikes, while the revised July-September GDP figure was substantially revised down to an annualized contraction of 2.5%, increasing uncertainty over the outlook. In addition, numerous uncertainties could significantly affect the domestic economy, including disruptions to the US government, and the outcome of the US-Japan trade negotiations. We believe it is necessary to closely monitor developments going forward.」

「During the six months ended September 30, Japan's economy continued on a gradual expansionary trend, following a substantial upward revision of the revised April-June GDP figure to an annualized increase of 3.0%, against a backdrop of stable exchange rates and interest rates. Numerous uncertainties could significantly affect the domestic economy, including US-China trade friction and the outcome of the US-Japan trade negotiations. We believe it is necessary to closely monitor developments going forward.」

「During the first quarter of the current fiscal year, Japan's economy continued on a gradual expansionary trend, although GDP in the previous January-March quarter contracted for the first time in nine quarters. This was supported by a trend toward yen depreciation and stable interest rates, against a backdrop of additional US interest rate hikes and a decline in North Korea-related risks. Numerous uncertainties could significantly affect the domestic economy, including concerns over escalating US-China trade friction and the negative impact of additional US interest rate hikes on emerging economies. In light of changes such as the Bank of Japan no longer providing an outlook for when its 2% price stability target would be achieved, we believe it is necessary to closely monitor developments going forward.」

「During the fiscal year, Japan's economy continued a gradual recovery, with real GDP growth in the October-December quarter increasing for the eighth consecutive quarter since the April-June quarter of 2016, supported by strong corporate earnings and firm overseas economies. On the other hand, numerous factors created an uncertain outlook, including concerns over US-China trade friction, the impact of US interest rate hikes on emerging economies, and conditions on the Korean Peninsula overseas, as well as concerns that political instability in Japan could delay policy implementation domestically.」

「During the nine months ended December 31, business sentiment improved significantly. Against a backdrop of strong corporate earnings, the Nikkei Stock Average recorded its longest-ever winning streak of 16 consecutive sessions in October, and the year-end closing level reached a 26-year high following the sense of reassurance created by the ruling parties' landslide victory in the House of Representatives election. Overseas, numerous uncertainties could significantly affect the domestic economy, including continued tensions concerning North Korea, concerns over growth in emerging economies, particularly China, and the additional interest rate hike decided at the FOMC meeting in December. We believe it is necessary to closely monitor developments going forward.」

「During the six months ended September 30, Japan's economy remained in good condition, with GDP in the April-June quarter positive for the sixth consecutive quarter and the Nikkei Average holding above the ¥20,000 level against a backdrop of strong corporate earnings. Overseas, numerous uncertainties could significantly affect the domestic economy, including heightened tensions concerning North Korea and moves toward completing the US response to the financial crisis. We believe it is necessary to closely monitor developments going forward.」

「During the first quarter of the current fiscal year, Japan's economy continued on a gradual expansionary trend, following GDP growth in the previous January-March quarter, which was positive for the fifth consecutive quarter for the first time in 11 years, against a backdrop of stable exchange rates and interest rates. Signs supporting an improvement in business sentiment also became increasingly evident, including the job-offers-to-applicants ratio reaching levels comparable with the bubble era and the Nikkei Average surpassing the ¥20,000 level. Overseas, numerous uncertainties could significantly affect the domestic economy, including instability on the Korean Peninsula, concerns over growth in emerging economies, particularly China, and US interest rate hikes. We believe it is necessary to closely monitor developments going forward.」

「During the fiscal year, Japan's economy continued a gradual recovery, with real GDP growth in the October-December quarter increasing for the fourth consecutive quarter, supported by economic measures and firm overseas economies. However, inflation remained below its initial target owing in part to lower crude oil prices, and personal consumption remained sluggish following the consumption tax increase. We expect that it will still take time to achieve sustainable economic growth. In addition, the outlook remained uncertain owing to factors including the direction of US policy, concerns over a downturn in emerging economies, particularly China, and instability on the Korean Peninsula.」

「During the nine months ended December 31, Japan's economy shifted toward a weaker yen and higher share prices following the US presidential election, and signs of a bottoming out in earnings emerged, particularly among export-related companies. However, the economic recovery remained sluggish owing to sluggish personal consumption, including a decline in inbound demand. Overseas, uncertainties that could significantly affect the domestic economy included additional US interest rate hikes, slowing growth associated with capital outflows from emerging-market economies, and uncertainty over the outlook following the UK's departure from the EU. We believe it is necessary to continue closely monitoring developments.」

「During the six months ended September 30, Japan's economic recovery remained sluggish, owing to the erosion of corporate earnings caused by the sharp appreciation of the yen since the beginning of the year and sluggish personal consumption, including inbound consumption. Overseas, uncertainties that could significantly affect the domestic economy included slowing growth in emerging Asian economies, particularly China, stagnation in the European economy following the UK's departure from the EU, and the outcome of the US presidential election in November. We believe it is necessary to closely monitor developments going forward.」

「During the first quarter of the current fiscal year, Japan's economy remained sluggish, owing to the trend toward yen appreciation and falling share prices since the beginning of the year, as well as sluggish growth in personal income. Overseas, numerous uncertainties could significantly affect the domestic economy, including a downturn in the European economy following the UK's departure from the EU, concerns over growth in emerging economies, particularly China, and the implementation of interest rate hikes in the United States. We believe it is necessary to closely monitor developments going forward.」