Monthly Economic Report (September)
Overview
The Cabinet Office’s September 2026 Monthly Economic Report assesses Japan’s economy as being on a moderate recovery path, while urging attention to the situation in the Middle East, natural disasters, and fluctuations in financial and capital markets. Private consumption, capital investment, exports, production, and employment show signs of recovery or improvement, while the trade and services balance is in deficit and housing construction is flat. Policy measures include fiscal management based on the Basic Policy on Economic and Fiscal Management and Reform 2026, relief from fuel, electricity, and city gas costs, stable supplies of crude oil and critical goods, and support for those affected by the Kumamoto Earthquake. On September 18, the Bank of Japan decided to guide the uncollateralized overnight call rate to around 1.25%. The report surveys economic, price, and financial developments in Japan and in the United States, Asia, and Europe.
Key points
- Japan’s economy is on a moderate recovery path, but the effects of the situation in the Middle East and natural disasters require close attention.
- Under its “responsible and proactive fiscal policy,” the government aims to achieve a strong economy and fiscal sustainability as an integrated whole.
- Consumption, investment, exports, production, and employment show signs of recovery or improvement, while the trade and services balance is in deficit.
- Overseas economies continue to recover moderately, while uncertainty related to the situation in the Middle East and other factors persists.
Overview
The Monthly Economic Report covers the assessment of the underlying state of Japan’s economy, the basic policy stance, demand trends, business activity and employment, prices and financial conditions, and overseas economies. It assesses domestic private consumption as showing signs of recovery, capital investment as recovering, exports as showing signs of recovery, production as generally showing signs of recovery, and employment conditions as improving. Corporate earnings are improving, but the effects of the situation in the Middle East warrant attention; consumer prices are rising moderately.
Looking ahead, improvements in employment and income conditions and the effects of various policies are expected to support a moderate recovery, while attention is urged to the effects of the situation in the Middle East, natural disasters, and fluctuations in financial and capital markets. Overseas, the report expects the world economy to continue recovering moderately despite weakness in some regions, and calls for close attention to uncertainty, including that related to the situation in the Middle East, and to financial market fluctuations.
Impact
As immediate measures in response to the situation in the Middle East, the government is implementing emergency measures to mitigate sharp fluctuations in fuel oil prices and measures to ease the burden of electricity and city gas charges. It aims to ensure a stable supply of crude oil through alternative procurement and, as needed, releases from reserves, and is working to secure stable supplies of critical goods and facilitate distribution.
Regarding the 2026 Kumamoto Earthquake, the government will promptly implement the “Package to Support the Lives and Livelihoods of Disaster Victims.”
The government and the Bank of Japan will work closely together and conduct policy flexibly in response to economic and price developments. The Bank of Japan is expected to achieve its price stability target in a sustainable and stable manner while confirming a virtuous cycle between wages and prices.
Details
The basic policy stance is based on the Basic Policy on Economic and Fiscal Management and Reform 2026, adopted by Cabinet on July 21. Under “responsible and proactive fiscal policy,” it aims to achieve a “strong economy” and “fiscal sustainability” as an integrated whole and ensure the transition to a “growth-oriented economy” that does not return to deflation. The FY2026 budget and the supplementary budget for the same fiscal year, compiled to minimize risks, will be executed appropriately and flexibly in response to circumstances.
For domestic demand, real private final consumption expenditure in Q2 2026 rose 0.0% quarter on quarter, and capital investment rose 1.5% (manufacturing: 0.4%; non-manufacturing: 2.0%). New housing starts in July fell 1.6% month on month, at an annualized rate of 774,000 units. For public investment, public works expenditures in FY2026 were up 0.4% from the initial budget for the previous fiscal year, and local government-funded projects were up 6.3% year on year.
Corporate current profits in Q2 2026 rose 24.6% year on year and 11.0% quarter on quarter. There were 1,028 bankruptcies in July and 830 in August. The unemployment rate was 2.4% in July. Wages and real total employee income were reported to be trending upward, and the sense of labor shortages remained high.
In August, the consumer price index excluding fresh food and energy rose 0.3% month on month and 1.9% year on year. The index excluding fresh food rose 0.1% month on month, while the overall index was unchanged month on month. Domestic corporate goods prices fell 0.1% month on month in August.
Overseas, GDP growth in Q2 2026 was 4.3% year on year in China, 0.6% quarter on quarter in South Korea, 12.9% year on year in Taiwan, and 5.3% in Indonesia, 1.9% in Thailand, and 7.8% in India. The U.S. economy grew 0.4% quarter on quarter, and in September the target range for the policy rate was raised to 3.75% to 4.00%.
On September 10, the European Central Bank raised its policy rate (deposit facility rate) to 2.50%; on September 16, the Bank of England kept its policy rate unchanged at 3.75%.