Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080619f.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s all-industry index was up sharply in April and stands
in the 92nd percentile of its range of values since 1993. Construction
is about at weak as the all industry index is strong standing in the
bottom 2% of its range. 
 

The all-industries index rose by 0.2 percent in April from its
year-earlier level following a 1.0 percent fall in March. The
all-industries index combines data from the primary sector (comprising
fishing, farming, forestry and mining) with the secondary or
manufacturing sector and data from the tertiary, or services, sector.
The services sector employs more than half of Japan's workforce.
Spending on services such as retailing, dining and travel drive this
sector. Its index stands in the 97th percentile of its range in April. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">Up to date Japan Industry Surveys </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-08</td>
<td>Mar-08</td>
<td>Feb-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.0</td>
<td>106.2</td>
<td>105.9</td>
<td>106.4</td>
<td>106.9</td>
<td>107.2</td>
<td>108.1</td>
<td>93.8</td>
<td>92.3%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>72.0</td>
<td>72.5</td>
<td>70.7</td>
<td>71.7</td>
<td>72.1</td>
<td>74.2</td>
<td>124.6</td>
<td>70.7</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>110.4</td>
<td>108.5</td>
<td>108.5</td>
<td>109.1</td>
<td>109.7</td>
<td>110.0</td>
<td>110.9</td>
<td>92.0</td>
<td>97.4%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">Ranges, Max, Min since
1993</td>
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Japan’s all-industry index was up sharply in April and stands in the 92nd percentile of its range of values since 1993. Construction is about at weak as the all industry index is strong standing in the bottom 2% of its range. The all- [...]

All Industry Index Advances and Shows Resilience

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Tom Moeller

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The Consumer Price Index rose 0.3% in June after rising 0.1% in May and increasing 0.2% in April. A 0.3% rise had been expected in the Action Economics Forecast Survey. The 2.7% y/y increase in the headline CPI in June compared to 2.4% in May and remained below the 9.1% peak in June 2022. The CPI excluding food & energy increased 0.2% last month after a 0.1% uptick in May and a 0.2% April gain. A 0.3% rise had been expected. The 2.9% y/y June rise compared to 2.8% in May, still well below the 6.6% peak in September 2022.

Energy prices rose 0.9% (-0.8% y/y) last month after falling 1.0% in May. Gasoline prices strengthened 1.0% (-8.3% y/y) after falling 2.6% in May. Fuel oil prices rose 1.3% (-4.7% y/y) after rising 0.9% in April. Natural gas prices rose 0.5% (14.2% y/y) following a 1.0% decline, and electricity prices gained 1.0% (5.8% y/y) after rising 0.9% in May.

Food prices rose 0.3% in June (3.0% y/y) for the second consecutive month. Egg prices fell 7.4% (+27.3% y/y), the third straight month of sharp decline. Meat, poultry & fish prices rose 0.8% (+4.1% y/y) after easing 0.1%, while dairy product prices declined 0.3% (0.9% y/y) after easing 0.1% in May. Cereal & bakery product costs eased 0.2% (0.9% y/y) after a 1.1% increase while fruit & vegetable prices rose 0.9% (0.7% y/y), following a 0.3% gain. Nonalcoholic beverage prices strengthened 1.4% (4.4% y/y) in June after falling 0.3% in May.

Goods prices less food and energy rose 0.2 (0.7% y/y) in June after holding steady in May. Prices of used cars and trucks fell 0.7% (+2.8% y/y) last month, after falling 0.5% in May, while new vehicle costs weakened 0.3% (+0.2% y/y) for the second consecutive month. Apparel prices rose 0.4% in June (-0.5% y/y) and reversed the prior month’s 0.4% decline. Appliance prices surged 1.9% (0.8% y/y), after increasing 0.8%. Home furnishings prices jumped 1.0% (1.7% y/y) after rising 0.3%. Recreation	 product costs rose 0.8% (-0.8% y/y) in May, doubling the May increase. Education & communication product costs held steady last month (-3.3% y/y) after rising 0.1% in May. Medical care goods prices rose 0.1% (NSA, 0.2% y/y) after increasing 0.6% in May.

Services prices less energy moved up 0.3% (3.6% y/y) last month following a 0.2% May gain. Shelter prices rose 0.2% (3.8% y/y) last month after two months of 0.3% increase as owners’ equivalent rent of primary residences increased 0.3% (4.2% y/y), the same as in May. The cost of lodging away from home declined 2.9% (-2.5% y/y), the fourth straight month of decline. Rents of primary residences gained 0.2% (3.8% y/y), the same as in May. Transportation service prices moved up 0.2% (3.4% y/y) after easing 0.2% as the cost of motor vehicle insurance edged up 0.1% (6.1% y/y) in June after strengthening 0.7% in May. Public transportation costs increased 0.4% (-2.7% y/y) after falling 2.5% during May. The cost of medical services increased 0.6% (3.4% y/y) after a 0.2% increase, and the cost of recreation services rose 0.2% (3.8% y/y) after slipping 0.1% in May. Education & communication services prices rose 0.1% (1.1% y/y) for the second consecutive month.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

**The Economic Implications of Tariff Increases** from the Federal Reserve Bank of San Francisco can be found [here](https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/07/economic-implications-of-tariff-increases/#wp--skip-link--target).

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- Monthly increase is highest in five months. Core gain moves up minimally.
- Energy costs post solid increase.
- Both core goods and core services prices move higher.

U.S. Consumer Price Index Strengthens in June

Sandy Batten

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The Empire State Manufacturing Index of General Business Conditions jumped nearly 22 points to 5.5 in July from -16.0 in June, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of -8.5 for July had been expected by the Action Economics Forecast Survey. The unexpected positive reading in July indicated that business activity in New York State increased for the first month since February. The percentage of respondents reporting an increase in general business conditions in July rose to 32.4% from 16.9% in June while the percentage reporting a decrease fell to 26.9% from 32.9%. The July survey was conducted between July 2 and July 10.

The headline index just reflects the answer to a single question concerning the state of economic activity. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 54.7 in July, its highest reading since July 2022 and well above the critical 50 value that separates expansion from contraction, from 48.6 in June. The calculated index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

The July jump reflected meaningful increases in most component indexes. The new orders index rose to 2.0 from -14.2. The shipments index increased to 11.5 from -7.2. Unfilled orders edged up to -6.4 from -8.3. Delivery times lengthened to 8.3, the highest reading since July 2022 and possibly an early indication that trade policy uncertainty is beginning to disrupt some supply chains, from 1.8 in June. Moreover, the relatively new supply availability index fell deeper into negative territory at -11.0 versus -8.1 in June. Inventories rose markedly to 15.6 in July, the highest reading since November 2022, from 0.9 in June.

On the labor front, the index for the number of employees rose five points to 9.2, and the average workweek index rose to 4.2, the first positive reading in eight months. This marks the first time that both indexes have been positive since 2022, suggesting that both employment and hours worked increased in July. Sixteen percent of respondents reported an increase in employment, the highest since March 2023, versus 14.6% in June while only 6.9% reported a decline in employment, the lowest since June 2022, down from 9.9% in June.

The prices paid index rose nine points to 56.0, pointing to a pickup in input price increases, while the prices received index held steady at 25.7, suggesting that selling price increases remained moderate though elevated relative to normal pre-pandemic levels. Slightly more than 29% of respondents reported an increase in prices received in July, the same as in June.

Firms remained fairly optimistic about the outlook. The index for future general business conditions edged up to 24.1 from 21.2 in June, suggesting that, on the whole, businesses expect activity to increase in the months ahead. New orders and shipments are expected to increase, and supply availability is expected to be little changed. Capital spending plans jumped markedly to 9.2 in July from -7.3 in June and -6.7 in May.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- The first positive reading for the index since February.
- The July jump reflected widespread increases across components.
- Evidence of some nascent supply-chain problems.
- Outlook six months ahead continues to brighten.

FRBNY Empire State Manufacturing Index Jumped 22 points in July

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) increased 1.6% (0.4% y/y) during the last four-week period after rising 2.3% in the prior four weeks.

Prices in the **Metals** group jumped 2.9% (-3.4% y/y) over the most recent four weeks. Price strength was broad-based. Aluminum prices rose 4.3% in four weeks (5.1% y/y) while lead prices also gained 4.3% (-5.9% y/y). Since mid-June, tin prices increased 3.0% (-2.7% y/y) while the cost a zinc rose 2.9% (-7.2% y/y). Steel scrap costs gained 2.4% (-11.1% y/y) over four weeks while copper scrap prices rose 0.9% (1.4% y/y).

**Crude Oil & Benzene** group prices moved 1.9% higher (-14.3% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil rose 2.2% to $67.65 per barrel but remained 17.8% lower y/y. It fell to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 5.6% (-34.2% y/y). Excluding crude oil, the industrial commodity price index rose 1.5% (1.6% y/y) during the last four weeks.

**Miscellaneous** group prices increased 1.3% (10.6% y/y) in the latest four week period. The price of tallow (used in the soap industry) rose 7.8% (15.7% y/y) in four weeks. Framing lumber prices gained 5.4% (37.2% y/y) but natural rubber prices fell 2.9% (+19.0% y/y) in four weeks.

Prices in the **Textile** group edged 0.3% higher (1.9% y/y) during the last four weeks. Cotton prices rose 1.7% in that same period and 5.5% y/y. Burlap costs improved 0.7% in four weeks and 10.0% y/y.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Prices increase broadly after earlier declines.
- Metals price strength is accompanied by higher oil costs.
- Lumber prices surge but natural rubber prices decline.

FIBER: Industrial Commodity Prices Strengthen in Latest Four Weeks

Japan's industrial production continues to be weak with output falling by 0.2% in May after falling by 1% in April and coming up lame - at flat - in March. Sequential growth rates are not telling an upbeat story either, with 12-month industrial production lower by 0.8%; over six months the decline is only 0.2% at an annual rate, but then over three months the annual rate of decline is 4.6%.

Manufacturing shows similar weakness to the trend for overall industry, but the three-month growth rate is at -5.7% at an annual rate.

Two key industries for Japan, textiles and transportation, show up with the declines over all three horizons. And for transportation, the decline over the last three months is 11.1% at an annual rate.

Manufacturing industries in Japan show a great deal of variation with consumer goods output on a more or less accelerating path, growing 3.2% over 12 months and then up to a 12% annual rate over three months. Intermediate goods output is in a significant decelerating phase, falling 3% over 12 months, falling at a 1.2% annual rate over six months and then stepping up the pace of decline to -6.6% at an annual rate over three months. Investment goods show a good deal more life, falling only 0.1% over 12 months, then growing at a 3.9% annual rate over six months and surging at a very vibrant 8.3% annual rate over three months.

Mining activity in Japan is recovering, showing a 6.8% annual rate decline over 12 months, a 5% annual rate decline over six months, and an 11% annual rate increase over three months.

Utilities output from gas and electric utilities shows a decline of 1% over 12 months, growth of 2.3% over six months. and then output declined at a 19.2% annual rate over the last three months.

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I plot Japan's output in terms of output levels rather than in terms of growth rates because growth rates are so specific to comparison with the particular point in time. I think looking at the levels of industrial production for Japan clarifies its weakness a lot more because you can see that output levels have generally been declining for quite a long time without a significant improvement; that includes some recent weakening from what we're already relatively weak levels of output.

In addition to these trend issues, is the fact that the Bank of Japan continues to fight inflation, domestically. Japan also is dealing with its two main trade partners and there are special issues. China, its largest trade partner, has been struggling trying to reinstate growth in an economy that has been hamstrung by an overbuilt property market and other challenges. Japan’s second biggest trading partner, the United States, continues to log growth, but tariffs are being threatened and tariffs that are relatively high. Japan is having a hard time coming to terms with U.S. demands. Japan has always been willing to play ball with the U.S. on tariff issues and in terms of setting up things like orderly marketing agreements to limit access to the U.S. market while still preserving access of some sort. And while we don't know how the Trump tariff negotiations will end (and that is partly by his design), at the moment Japan seems to be facing the potential for some relatively large tariff barriers, something that has thrown a pall across the domestic economy.

In the past, the U.S. has used exchange rate movements and threats in order to try to curtail competitive threats from Japan. Those tactics largely failed because Japanese firms held on firmly to their market share and were willing to increase efficiency and productivity in various ways including moving production out of Japan to offshore facilities where their competitiveness was even further enhanced. The U.S. program to push the yen up which resulted in the yen breaking the value of 100 and hitting an exchange rate at its peak of around 85 to the dollar did not redress the problems that the U.S. had with its trade deficit and in fact it may have deepened those problems by spreading Japanese manufacturing know how to Pacific Rim countries with lower production costs.

However, Japan has outsourced a lot, and it clearly is looking to maintain the domestic production that it still has. It's unclear how the recent Trump threats and tariffs are going to play out, especially at the time that the Pacific Rim is in play for geopolitical reasons and the U.S. needs a strong ally in the Pacific Rim. This is going to be an important relationship to watch.

Japan

Japan’s IP Is Still Waffling and Weak