1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 87
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
Business confidence improved in 4Q25
40
20
0
-20
-40
2010
2012
2014
2016
2018
2021
2023
Manufacturing Business Conditions
Manufacturing Outlook
Non-manufacturing Business Conditions
Non-manufacturing Outlook
2025
Source: Bank of Japan, Bloomberg Finance LP, Scotia Wealth Management
Household consumption softened in 3Q25 despite earlier signs of improvement, raising
questions about the durability of the shunto-driven (wage negotiations) recovery in real incomes.
Nominal wage growth remains firm, supported by robust outcomes from the 2025 wage round,
yet real wages have not turned decisively positive. Annual wage negotiations affect less than onein-five workers, while income growth for the remainder has been muted. This helps explain the
uneven spending profile, as households remain sensitive to elevated price levels even as labour
market conditions improve. Political uncertainty and financial market volatility have likely
reinforced a cautious stance, particularly for discretionary spending.
High inflation has eroded wage growth
4%
Rolling 4Q avg
2%
0%
-2%
-4%
2018
2019
2020
2021
Real wage growth YoY
2022
2023
2024
2025
Nominal wage growth YoY
Source: Ministry of Health, Labour and Welfare, Japan, Bloomberg Finance LP, Scotia Wealth Management
Government support embedded in the new stimulus package should help cushion households
through into early 2026. Energy and utility subsidies, alongside targeted relief measures, are likely
to stabilize real incomes and smooth consumption rather than generate a sharp rebound. These
measures may temporarily suppress headline inflation – which has been above the 2% mark for
much of the post-Covid era – supporting our forecast for CPI to ease to a 1.8% average in 2026,
down from an estimated 3.0% in 2025. This moderation should not be mistaken for a loss of
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