Monthly Economic Report (October)
Overview
The Cabinet Office’s October 2026 Monthly Economic Report assessed that the economy was recovering moderately, while the effects of the situation in the Middle East should be watched closely and fluctuations in financial and capital markets required attention. Private consumption, production, corporate earnings, and employment showed signs of recovery or improvement; capital investment was recovering, exports had stalled, and consumer prices were rising. The government is advancing measures to ease sharp fuel price changes, ensure stable supplies of crude oil and important goods, and execute the budget flexibly, while coordinating with the Bank of Japan. The report reviews domestic demand, corporate activity, employment, prices, and financial conditions, as well as overseas economies including the United States, Asia, and Europe.
Key points
- The economy is recovering moderately, but the effects of the situation in the Middle East need to be watched closely.
- Exports have recently stalled in their recovery, while consumer prices are rising.
- The global economy continues to recover moderately despite weakness in some regions, while uncertainty persists.
Overview
The report presents its assessment of domestic economic trends and outlook, along with the basic stance of policy, and covers demand trends, corporate activity and employment, prices and financial conditions, and overseas economies in its detailed sections. Looking ahead, improvements in the employment and income environment and the effects of various policies are expected to support a moderate recovery, while the effects of the situation in the Middle East should be watched closely and fluctuations in financial and capital markets require attention.
Impact
The government says it will promptly implement the “Package to Support the Livelihoods and Livelihood-Related Work of Those Affected” following the 2026 Kumamoto Earthquake.
Details
Based on the “Basic Policy on Economic and Fiscal Management and Reform 2026,” adopted by the Cabinet on July 21, the government says it will realize a “strong economy” and fiscal sustainability together under “responsible proactive fiscal policy,” and ensure the transition to a growth-oriented economy. As immediate measures in response to the situation in the Middle East, it is implementing emergency measures to ease sharp fluctuations in fuel prices and will seek to ensure a stable supply of crude oil through alternative procurement and, as needed, releases from reserves. It will also work to ensure stable supplies of important goods and smooth distribution, and execute the FY2026 budget and supplementary budget appropriately and flexibly in response to conditions. The government and the Bank of Japan will coordinate closely, and the government expects the Bank of Japan to conduct monetary policy aimed at achieving the 2% price stability target sustainably and stably while confirming a virtuous cycle between wages and prices.
In Japan, private consumption showed signs of recovery, and capital investment was recovering. Production and employment showed signs of recovery or improvement. Housing construction was generally flat, public investment remained firm, and the number of bankruptcies was broadly flat. Corporate earnings improved, but the situation in the Middle East requires close attention; business sentiment showed signs of improvement overall. Domestic corporate prices were recently flat, while consumer prices were rising.
According to the “Financial Statements Statistics of Corporations by Industry, Quarterly,” ordinary profits of corporations rose 24.6% year on year (up 11.0% quarter on quarter) in April–June 2026. New housing starts in August were at an annualized rate of 753,000 units, down 2.7% from the previous month, and the unemployment rate was 2.5% that month. In September, the consumer price index excluding fresh food and energy rose 2.4% year on year. On September 18, the Bank of Japan decided to encourage the uncollateralized overnight call rate to remain at around 1.25%.
Overseas, the U.S. economy continued to expand moderately, while China’s economy slowed moderately. Recovery, expansion, or improvement was seen in South Korea, Taiwan, Indonesia, Thailand, and India. The euro area was recovering; recovery stalled in Germany, while the United Kingdom continued to recover. The global economy continued to recover moderately despite weakness in some regions, and uncertainty about the world economy, including that stemming from the situation in the Middle East, persisted.