BNY’s Head of Markets Macro Strategy Bob Savage highlights stronger Japanese activity data, with the Economic Trend Index and machine tool orders pointing to a bottoming-out in growth. Despite this, USD/JPY remains elevated, reflecting lingering BoJ ambivalence on rates and global risk dynamics, as markets weigh improving domestic fundamentals against still-wide yield differentials and safe-haven flows into the Dollar.

Activity stabilizes but currency lags

"Japan’s Economic Trend Index (CI) for January 2026 shows a continued stabilization in economic activity. The leading index rose to 112.1 (from 110.4 in December 2025), indicating improving future economic conditions."

"The coincident index climbed significantly to 117.9 (from 114.5), the highest level since May 2019, reflecting current economic strength. This was supported by a 4.3% m/m rise in industrial production and a 3.1% m/m increase in export volume."

"Japan’s machine tool orders rose 24.2% y/y in February, slightly down from 25.3% in January. Domestic orders increased by 10.1% y/y, up from 2.0% in January, while foreign orders grew 29.8% y/y, down from 34.2%."

"Overall, the data point to a bottoming-out of the economic downturn with positive momentum in production, exports and consumer sentiment."

"The minutes from the BoJ’s January meeting show ambivalence even before the war, with concerns about JPY and the need for more rate hikes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)