Fuel prices have risen this year due to higher fuel excise duties and the war in Iran. Drivers are reducing fuel consumption in response to higher prices. Since March, consumption has been approximately 12% lower than a year earlier. As a result, the increase in fuel spending was limited to 6% year on year. Drivers in lower-income groups and urban areas reduced their fuel consumption relatively strongly. Growth in non-fuel spending among drivers is as high as among other households. However, it differs by income: growth is lower among lower-income groups.

Q2 GDP and monthly data point to strengthening growth momentum, …although risks stem from larger and longer energy shocks, rising interest rates, frictions with China and a potential slowing of the AI boom. Inflation driven up by energy shock, AI boom, and stronger wage growth. Regime shift 1: Rate hike path BoJ (we expect another hike tomorrow) and QT (although moderated) a key factor pushing up bond yields… Regime shift 2: … and so is PM Takaichi’s more expansive fiscal stance. JGB yields continued to increase, as the curve bear flattened in recent months. Lower hedging costs will only provide a small relief for OATs. Joint FX intervention countered yen weakness… but a structural shift in rate spreads and investor behaviour crucial for further yen recovery.. We expect sideways movement in the yen in the coming months and a further recovery towards the end of 2027.