Japan's coincident economic index dropped to its lowest level in three months in August 2026, falling to 118.7 from 120.6 the previous month. The decline, attributed to natural disasters and Middle East-related disruptions, marked the worst reading since May. Despite this setback, the economy showed signs of moderate recovery, driven by improvements in employment and income conditions, as well as government policies aimed at boosting private consumption.
Business investment also saw an uptick, although companies remained cautious about future prospects. Meanwhile, the Bank of Japan maintained its short-term policy rate at 1.0% in July, the highest since September 1995. The central bank hinted at further rate hikes, citing underlying inflation nearing 2% and supportive financial conditions.