Japanese exports have seen four consecutive increases but have not met expectations. Resilience towards China remains an important support, while exports to the United States have plummeted by 11%.

Despite the ongoing diplomatic tensions with China, stable demand from China has driven Japan's exports to increase for the fourth consecutive month. The Japanese Ministry of Finance reported on Thursday that overall exports in December last year increased by 5.1% year-on-year, mainly driven by semiconductor components and non-ferrous metals. However, this growth was lower than the analysts' expectation of 6.1%. By region, exports to China increased by 5.6% year-on-year, driven by raw materials and electronic components; exports to the United States, on the other hand, decreased significantly by 11.1% year-on-year due to a decline in automotive and automotive components. Exports to the European Union increased by 2.6%. Overall, Japan's trade balance achieved a surplus in unadjusted terms, with a surplus of 105.7 billion yen (approximately 6.67 billion US dollars); imports increased by 5.3% year-on-year. Despite the mixed data released on Thursday, this will lead the Bank of Japan to maintain its gradual path of interest rate hikes. It is widely expected in the market that the Bank of Japan will keep interest rates unchanged on Friday after raising the benchmark interest rate in December last year. The Bank of Japan has emphasized that as long as prices and economic growth align with its forecasts, it will continue to advance the process of raising interest rates. It is worth mentioning that on the same day the Bank of Japan is set to announce its latest interest rate decision, Japanese Prime Minister Kishida Fumio will dissolve the lower house of parliament. Kishida Fumio officially confirmed on Monday that the lower house will be dissolved on January 23 and an early election will be held on February 8. The prime minister, who advocates expansionary fiscal policy and loose monetary policy, also stated that bold risk management and getting rid of excessive austerity constraints are necessary. Concerns among investors about the sharp expansion of government spending in Japan and the return of inflation have quickly escalated. What is more alarming to investors is Kishida Fumio's promise to temporarily reduce the consumption tax rate on food. This move is considered a political taboo - even Shinzo Abe, the mentor and former prime minister who is famous for his "Abenomics" stimulus policy, dared not touch this red line. Goldman Sachs traders pointed out that Kishida Fumio's statements demonstrate that she is positioning this election as a vote for the public on herself and her fiscal policy. The bond market is viewing this election as a story of fiscal expansion. Kishida Fumio's proposal to reduce the consumption tax rate does not have a specific source of funds, which will only exacerbate concerns about Japan's deteriorating fiscal situation. Under this pressure, the Japanese bond market is experiencing significant volatility. With Japan's debt burden ranking at the top among major economies and a quarter of the fiscal budget needed to repay debt interest, the impact of rising bond yields is particularly severe for Japan. With the election on February 8 fast approaching, it will be very difficult for policy shifts during the campaign period, and Kishida Fumio may lack effective means to calm market sentiments. Investors are increasingly worried about whether Japan's fiscal control is slipping out of control.