Core Insights - The concept of "deposit into the market" emphasizes the importance of "new funds" while also considering "exit funds" to determine "net new funds," which have a greater correlation with stock prices. Ultimately, this reflects the willingness of residents to invest in the market, which is strongly correlated with income expectations [3][70][71] - The growth rate of new funds is more significant than the absolute amount of new funds, as it has a stronger correlation with stock market performance. High-net-worth individuals and insurance funds may provide independent support to the market in 2025, but this influence may diminish in 2026 [3][70][71] - The analysis framework for income expectations is based on employment and service inflation, with indicators such as resident credit pulses and housing prices leading to income expectations. In the baseline scenario, the amount of new funds entering the market is expected to remain relatively stable compared to the previous year [3][70][71] Group 1 - New funds do not equate to net new funds; stock price increases are more closely related to the growth rate of new funds. The relationship between new funds and stock market performance is not strong, as evidenced by fluctuations in new funds from 2015 to 2025 [4][7][75] - The correlation between the growth rate of new funds and stock market performance is more significant. For instance, in 2016, new funds reached 4.9 trillion yuan, but the market declined by 12.9%, while in 2019, lower new funds coincided with a 33% market increase [7][75][78] - The willingness of residents to invest in the stock market is a decisive factor, closely linked to income expectations. A decline in investment willingness can lead to reduced market participation, as seen in 2022 when a 14% increase in maturing deposits did not translate into increased market investment [21][25][90] Group 2 - The investment willingness of residents is significantly influenced by income expectations. As of Q3 2025, the tendency to save remains high, indicating potential for increased risk asset allocation if saving tendencies normalize [25][94] - Employment perceptions are closely tied to income expectations, which in turn affect stock market trends. Historical data shows a negative correlation between unemployment rates and stock market performance in the U.S. and Japan [30][99] - High-net-worth individuals' willingness to invest in the stock market may not be significantly affected by broader income expectations, and insurance funds may contribute to market investments, although their growth may be limited compared to 2025 levels [34][35][106]

Group 1: CPI Insights - In November 2025, the CPI increased by 0.7% year-on-year, while the PPI decreased by 2.2% year-on-year[7] - The core CPI remained high at 1.2% year-on-year, unchanged from the previous month, marking the highest level since February 2024[10] - Food prices contributed positively to the CPI, with fresh vegetable prices rising by 7.2% month-on-month, while pork prices fell by 2.2%[8] Group 2: PPI Analysis - The PPI showed a month-on-month increase of 0.1%, but the year-on-year decline expanded to 2.2%[15] - Upstream prices were supported by rising global non-ferrous metal prices, while the impact of "anti-involution" policies continued to manifest in certain industries[15] - Coal mining and non-ferrous mining sectors led the PPI increase, with coal prices rising by 4.1% month-on-month[15] Group 3: Policy and Market Outlook - The "14th Five-Year Plan" and recent central economic meetings emphasized the importance of service consumption, indicating a potential shift in price recovery drivers towards service CPI in 2026[14] - The effectiveness of fiscal subsidies and anti-involution policies is expected to continue influencing market dynamics, with a focus on core service CPI recovery elasticity[14] - Risks remain regarding the uncertainty in the real estate market and the potential inadequacy of policy measures[4]

Group 1: CPI Analysis - The core CPI year-on-year remains high at 1.2%, unchanged from the previous month, marking the highest level since February 2024[7] - In November, the overall CPI increased by 0.7% year-on-year, supported by food prices and consumption subsidies[7] - Food prices rose by 0.5% month-on-month, with fresh vegetable prices increasing by 7.2% due to weather factors[8] Group 2: PPI Insights - The PPI decreased by 2.2% year-on-year in November, with a month-on-month increase of 0.1%[18] - The decline in PPI is influenced by falling international oil prices, while upstream prices for coal and non-ferrous metals have risen[18] - The "anti-involution" policy continues to impact industrial prices, with coal mining prices increasing by 4.1% month-on-month[18] Group 3: Future Outlook - The recovery of service CPI is expected to be a key variable for price stabilization in 2026, shifting focus from physical consumption[17] - The ongoing emphasis on service consumption in the "14th Five-Year Plan" and central economic work conference highlights the need for policy support[17] - Risks remain regarding the uncertainty in the real estate market and potential inadequacies in policy measures[24]

Summary of Japan Economic Comment: Outlook for 2026-2027 Industry Overview - **Industry**: Japanese Economy - **Focus**: Inflation trends, particularly food and service inflation, and their impact on the Consumer Price Index (CPI) Key Points Inflation Trends - **Food Inflation**: - Food inflation peaked in July 2023 and is expected to decelerate until mid-2026, with core-core CPI projected to decline from 3.0% in 2025 to 2.1% in 2026, largely due to food inflation contributing -0.8 percentage points to the total deceleration [1][2] - Rice inflation fell from a peak of 102% YoY in May to 40% in October 2023, with expectations of reaching 0% YoY by April 2024 [2] - **Service Inflation**: - Underlying service inflation is expected to stabilize around 2% YoY, with current headline service inflation at 1.6%, impacted by government policies such as free high school tuition [3] - The introduction of free tuition for private high schools and free elementary school lunches is anticipated to exert downward pressure on service CPI in FY2026, estimated to impact service CPI by 60 basis points [3] Wage Growth and Its Impact - **Wage Outlook**: - A slowdown in wage growth is expected during the 2026 Shunto negotiations, decreasing from 3.7% in FY2025 to 3.2% [4] - Core wages are projected to decline from 2.5% year-to-date in FY2025 to around 2.3%, leading to service inflation remaining slightly below 2% [4] Core CPI Projections - **Core CPI**: - Expected to slow to 1.7% YoY in CY2026, influenced by government policies such as the abolition of the provisional gasoline tax and the introduction of electricity and gas subsidies, which will lower energy prices [5] - Core CPI is projected to stabilize around 2% beyond 2026, with estimates of 1.9% in 2027 and 2.0% in 2028 [5] Risks and Uncertainties - **Food Disinflation Risks**: - The pace of food disinflation remains uncertain, particularly due to recent JPY depreciation, which poses upside risks to food prices [2] - **Government Policy Effects**: - The impact of government interventions on CPI is significant, with estimates indicating a reduction of core CPI by 0.63 basis points due to subsidies [33][5] Economic Outlook - **GDP Growth**: - Real GDP growth is projected at 0.9% for 2025, 1.2% for 2026, and 1.0% for 2027, indicating a stable economic environment [46] - **Inflation Expectations**: - Inflation expectations are anticipated to remain stable at around 2% beyond 2026, supported by rising output gaps and wage growth [46] Additional Insights - **Housing Rent**: - Housing rent rose by 0.4% YoY in October 2023, marking the highest increase since 2005, which significantly impacts core CPI and service CPI [25] - **Consumer Confidence**: - Consumer confidence is rebounding, partly due to slowing food inflation, which may positively influence private consumption [67] This summary encapsulates the key insights from the Japan Economic Comment, focusing on inflation trends, wage growth, core CPI projections, and the overall economic outlook for Japan through 2026-2027.

Core Insights - The article discusses the outlook for domestic inflation in 2026, focusing on the core Consumer Price Index (CPI) and Producer Price Index (PPI) trends, highlighting the need for effective fiscal policies to stimulate demand and support price recovery [2][3][4]. Group 1: Core CPI Analysis - The core CPI has recently returned to the 1% range, indicating a positive signal, but this is attributed to specific factors rather than a broad recovery in domestic demand [2]. - The sustainability of "old momentum" is questioned, with expectations for increased fiscal support in 2026, particularly towards the service sector, but concerns about diminishing multiplier effects are raised [2][3]. - The direction of the price base is contingent on effective fiscal spending to create a positive demand cycle, emphasizing the need for structural changes in fiscal policy rather than mere continuation of existing measures [3]. Group 2: 2026 Inflation Projections - It is anticipated that the core CPI will shift focus from physical consumption driven by "trade-in" policies in 2025 to the recovery elasticity of "service CPI" in 2026, dependent on effective domestic demand policies [4]. - The PPI is expected to experience a recovery influenced by the interplay between real estate sector challenges and supply-side reforms, with potential for gradual improvements as policies are implemented [4].