The Great Liquidity Pivot
Tokyo is no longer the world’s bargain basement. As of November 09, 2025, the narrative of the ‘Lost Decades’ has been unceremoniously buried under a mountain of record-breaking wage data and a fundamental shift in the Bank of Japan’s DNA. For years, the Yen carry trade was the only game in town, a mechanism for cheap capital to flee Japan and find yield elsewhere. That trade is dying. The money is staying home, and more importantly, it is finally moving from corporate balance sheets into the pockets of the Japanese consumer. This is not a subtle shift. It is a tectonic realignment of the world’s fourth-largest economy.
The data released in the 48 hours prior to this report paints a vivid picture of this transition. On Friday, November 7, 2025, household spending figures showed a surprising 1.2 percent month-on-month increase, defying the usual seasonal stagnation. This spending surge is the direct result of the 2025 Shunto spring wage negotiations, which saw a final average hike of 5.17 percent, the highest in over three decades. This is the ‘Shunto Hammer’ that has finally cracked the shell of deflationary expectations.
ING Rewrites the Growth Script
ING Economics has responded to this momentum by aggressively revising their GDP forecasts. Earlier this year, the consensus for Japan’s 2025 growth hovered at a dismal 0.8 percent. As of this weekend, ING has pushed that projection to 1.3 percent. While a 0.5 percent increase might seem incremental to a casual observer, in the context of Japan’s demographic headwinds, it represents a massive output gap closure. The ‘Why’ behind this revision is found in the virtuous cycle of real wage growth. For the first time in a generation, wage increases are consistently outpacing the Core Consumer Price Index, which sat at 2.6 percent in the latest October print.
The risk profile has shifted from ‘stagnation’ to ‘normalization pain.’ Governor Kazuo Ueda has navigated the Bank of Japan (BoJ) through two rate hikes this year, bringing the short-term policy rate to 0.50 percent. The market is now pricing in a 65 percent probability of another hike by January. This is the reward for decades of patience: a functioning monetary policy that actually has room to move. However, the cost of this transition is visible in the bond market, where JGB yields are testing levels that threaten the solvency of smaller, debt-heavy regional banks. The follow-the-money trail shows capital exiting low-yield bonds and flooding into domestic equities and consumer-facing sectors.
Visualizing the Wage Revolution
The Export Paradox and the 148 Yen
The traditional view holds that a weak Yen is the lifeblood of Japanese industry. When USD/JPY spot rates closed at 148.20 last Friday, the market’s reaction was vastly different than it would have been two years ago. In 2023, a 148 Yen was seen as a sign of weakness. Today, it is viewed as a strategic advantage for a modernized export sector that has moved up the value chain. Companies like Tokyo Electron and Advantest are no longer just selling hardware; they are the gatekeepers of the global AI supply chain. For these giants, a weaker Yen inflates repatriated earnings, but they are no longer using those gains to buy back shares. They are using them to fund the very wage hikes that ING identifies as the primary driver of GDP.
However, the investigative lens reveals a darker side to this currency dynamic. While the Nikkei 225 benefits, small and medium enterprises (SMEs) that lack global pricing power are being crushed by the cost of imported energy and raw materials. This creates a two-tier economy. The ‘Reward’ is concentrated in the top-tier corporations, while the ‘Risk’ is absorbed by the 70 percent of the workforce employed by SMEs. The government’s fiscal stimulus package, currently being debated in the Diet, is specifically designed to bridge this gap by providing subsidies for energy-intensive manufacturing.
Comparative Economic Indicators: November 2025 Update
| Metric | 2024 Actual | 2025 Forecast (Revised) | Trend Signal |
|---|---|---|---|
| GDP Growth | 0.7% | 1.3% | Bullish |
| Core CPI (Inflation) | 2.8% | 2.6% | Stabilizing |
| Shunto Wage Hike | 5.10% | 5.17% | Record High |
| BoJ Policy Rate | 0.10% | 0.50% | Normalizing |
The Debt Service Trap
We must follow the money to the Ministry of Finance to understand the ultimate constraint on this growth. Japan’s debt-to-GDP ratio remains north of 250 percent. For every 100 basis point increase in interest rates, the government’s debt servicing costs balloon by several trillion Yen. This is the invisible ceiling on Japan’s recovery. According to the latest labor ministry data, real wages are finally positive, but the government’s fiscal space is shrinking. If the BoJ is forced to hike rates too quickly to defend the Yen or combat imported inflation, they risk triggering a fiscal crisis that would negate the gains from domestic consumption.
Investors are currently betting that the BoJ can thread this needle. The flow of foreign direct investment into Japanese semi-conductor hubs in Kumamoto and Hokkaido suggests a long-term play on Japanese structural stability. The speculative money that once used the Yen as a funding currency is being replaced by institutional ‘sticky’ capital that views Japan as a safe haven in a volatile Asia-Pacific landscape. The risk is no longer that Japan will fail to grow, but that it will grow too fast for its own debt structure to handle.
The next major milestone to watch is the January 2026 preliminary Shunto statements. If major unions like UA Zensen begin their opening bids above the 6 percent mark, it will signal that the wage-price spiral has shifted from a recovery phase into a self-sustaining expansion. Watch the 10-year JGB yield; if it breaks 1.5 percent before the new year, the Bank of Japan will be forced to choose between currency stability and fiscal solvency.
