Corporate bankruptcies in Japan surged to a decade-high in 2024, totaling 9,901 cases, a 16.5% increase from the prior year, driven by escalating raw material costs and a labor shortage.

Core inflation in Japan has consistently exceeded the Bank of Japan's 2% target for nearly three years, largely due to rising import costs linked to a weak yen.

The Bank of Japan is set to hold a two-day policy meeting ending on January 24, 2025, where analysts are predicting a potential interest rate hike from the current 0.25%.

BOJ Deputy Governor Ryozo Himino has indicated that discussions regarding a possible interest rate increase will take place, citing positive trends in Japan's wage outlook.

Policymakers remain optimistic that the annual rise in regular pay, currently between 2.5% and 3%, will bolster consumption, although this may create challenges for smaller firms struggling to retain employees.

In December 2024, Japan's service-sector sentiment improved, with a sentiment index of 49.9, marking a 0.5-point increase from November.

The 'economy watchers' survey, which serves as a leading indicator of household spending, reflects the sentiment of companies closely linked to consumer behavior.

Despite an uptick in service-sector sentiment, firms' outlook for the economy has declined to 48.8, reflecting concerns over rising fuel and food prices that are likely to impact consumer spending.

Companies are anticipating worsening economic conditions due to increasing living costs, which are expected to further affect household spending.

Japan's economy recorded an annualized growth of 1.2% in the third quarter of 2024, a decrease from the previous quarter's 2.2%, with consumer spending rising by only 0.7%.