Japan’s industrial production rose 2.6% year on year in December. This was unchanged from the previous reading.
The data shows that annual output growth held steady at 2.6% at the end of the year. No month-on-month figure was provided in this update.
Implications For Japanese Equities
With Japan’s industrial production for December 2025 staying flat at 2.6% growth, the economic momentum we saw earlier in 2025 appears to be fading. This lack of acceleration suggests a potential ceiling for Japanese equities in the near term. We should therefore reconsider any aggressively bullish positions on the Nikkei 225 index.
This stagnant industrial data, combined with the recent January 2026 inflation figure of only 1.7%, reinforces our view that the Bank of Japan will maintain its ultra-loose monetary policy. The policy divergence with other central banks, particularly the US Federal Reserve, is likely to persist. This environment continues to favor a weaker yen, suggesting long USD/JPY positions remain attractive.
Given this outlook, selling out-of-the-money call options on the Nikkei 225 could be a prudent strategy to generate income from an expected range-bound market. We saw a similar industrial production plateau back in mid-2024, which preceded a period of market consolidation and a weaker currency. The current data points to a repeat of that pattern rather than a new breakout.
Implied volatility may remain low as the market digests this stable but unexciting data. This presents an opportunity to buy longer-term protective puts on export-heavy industrial stocks at a relatively low cost. Recent export data from January 2026 already showed a surprising slowdown in shipments to China and Europe, making such hedges timely.
What To Watch Next
In the coming weeks, we will be looking for confirmation of this slowdown in the upcoming Tankan business sentiment survey. For now, strategies that benefit from a sideways stock market and a depreciating yen are warranted. We should be cautious about adding to long equity positions until fresh catalysts for growth emerge.
