Monthly Economic Report (August)

The August 2026 Monthly Economic Report organizes the assessment of Japan’s economic baseline, basic policy stance, demand, production and employment, prices and finance, and the overseas economy.

Domestically, private consumption, business investment, exports, and employment showed signs of recovery or improvement, while production was flat. Corporate earnings were improving, but the effects of the situation in the Middle East require close monitoring.

Looking ahead, improvements in employment and income conditions and the effects of various policies are expected to support a moderate recovery, while the situation in the Middle East, natural disasters, and fluctuations in financial and capital markets were identified as sources of uncertainty.

Improvements in employment and income conditions and the effects of various policies are expected to support a moderate recovery. In response to the situation in the Middle East, measures are being implemented to ease the burden of fuel oil, electricity, and city-gas charges and ensure stable supplies of crude oil and important goods.

Nominal GDP growth in the April–June 2026 quarter increased 1.2% quarter on quarter, marking the ninth consecutive quarter of positive growth. Private consumption decreased 0.0% quarter on quarter in real terms, and business investment decreased 2.0% quarter on quarter in the January–March 2026 quarter, but an increase is expected in the FY2026 plan, while housing construction was generally flat.

Public investment remained firm. The value of completed public works decreased 1.5% month on month in June, the value of public-works contracts decreased 1.0% in July, and the value of public-works orders increased 19.3% in June. Exports showed signs of recovery, imports were generally flat, and the trade and services balance was generally in equilibrium.

Industrial production was flat, with the production index increasing 1.9% month on month in June and the inventory index increasing 2.8%. The manufacturing production forecast was for increases of 1.2% in July and 4.5% in August, with downside risks from the situation in the Middle East and the 2026 Kumamoto Earthquake.

Employment showed signs of improvement, and the sense of labor shortages remained high. The employment conditions diffusion index was −37 for all industries, −27 for manufacturing, and −43 for nonmanufacturing. Wages and real total employee income increased or rose moderately.

In July, domestic corporate goods prices were unchanged at 0.0% month on month, while consumer prices for all items excluding fresh food and energy increased 0.3% month on month. The Nikkei Stock Average rose from the 61,800-yen range to the 69,200-yen range, then fell to the 65,800-yen range, while the yen–US dollar exchange rate moved in the yen-appreciation direction from the 163-yen range through the 156-yen range, then in the yen-depreciation direction to the 159-yen range.

Regarding the basic policy stance, the FY2026 budget and supplementary budget will be implemented flexibly in response to circumstances, based on the “Basic Policy on Economic and Fiscal Management and Reform 2026,” decided by the Cabinet on July 21. The government and the Bank of Japan will cooperate, and the Bank of Japan is expected to pursue monetary policy aimed at achieving the 2% price stability target while confirming a virtuous cycle of wages and prices.

Although some regions showed weakness, the overseas economy continued to show moderate recovery as a whole. South Korea’s economy was recovering moderately; Taiwan’s economy was expanding, led mainly by external demand; Indonesia’s economy was recovering moderately; Thailand was showing signs of recovery; and India’s economy was expanding. The euro area and the United Kingdom were also showing signs of recovery, while Germany’s recovery showed signs of a pause. China’s economy was slowing moderately, and India’s GDP growth in the January–March 2026 quarter increased 7.8% year on year.

Overseas, uncertainty continued, particularly regarding the situation in the Middle East, and movements were observed in major global stock prices, interest rates, exchange rates, crude-oil prices, and gold prices. Although a recovery in the overseas economy is expected going forward, attention is required regarding the effects of the situation in the Middle East and fluctuations in financial and capital markets.