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Risks are shifting towards more BoJ tightening The stars are aligning for our long-held view of another rate hike before year-end. For a start, the LDP/Komeito coalition and the DPP have agreed on a ¥13.9tn (2.3% of GDP) supplementary budget. The LDP …
22nd November 2024
Pick-up in underlying inflation will prompt rate hike next month The slowdown in headline inflation in October was due to base effects from utilities prices. With underlying inflation climbing further above the Bank’s 2% target, the case for another rate …
21st November 2024
This page has been updated with additional analysis since first publication. Flash PMI points to continued rebound in activity The renewed rise in the composite PMI supports our view that activity will continue to expand at a robust pace in the remainder …
Consumption continuing to surge For the first time since the market turmoil in August, the financial markets consider it more likely than not that the Bank of Japan will hike rates by another 25bp at its December meeting. One reason is that markets now …
15th November 2024
GDP growth set to remain sluggish The economy lost momentum in the third quarter and we think that GDP growth will remain around trend over the coming quarters. According to today’s preliminary estimate, GDP growth slowed from a downward-revised 0.5% q/q …
14th November 2024
Our base case is that the LDP/Komeito coalition will be able to push through major pieces of legislation, including a supplementary budget by year-end, with only minor concessions to the Democratic Party for the People. If the DPP insists on its radical …
13th November 2024
Our Japan Chart Pack has been updated with the latest data and our analysis of recent developments. Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. With the Bank of Japan …
12th November 2024
Tariffs won’t be a big drag We’re now assuming that Donald Trump will impose a 60% tariff on US imports from China and a 10% tariff on imports from all other countries next year. The US is Japan’s largest export destination, with shipments equivalent to a …
8th November 2024
Regular wage growth may already have peaked The strong pay hikes in this year’s spring wage negotiations now seem to be fully reflected in labour cash earnings and we expect wage growth to slow again next year. According to today’s preliminary estimate, …
7th November 2024
LDP loses majority for first time since 2009 We already indicated last week that the LDP might lose its majority in last Sunday’s House of Representatives election, but the fact that it failed to achieve a majority even once we include the seats of …
1st November 2024
BoJ Governor Ueda sounded more optimistic today and we’re sticking to our forecast of another rate hike at the Bank’s next meeting in December, though we don’t expect further tightening in 2025 . It came as no surprise that the Bank left its policy rate …
31st October 2024
Bank of Japan will hike rates at December meeting The Bank of Japan retained its hawkish outlook when it kept policy unchanged at today’s meeting and we still expect a rate hike to 0.5% at its next meeting in December. It came as no surprise that the Bank …
Consumption weakening yet again The September activity data were a mixed bag and consistent with our view that GDP growth slowed last quarter. Taking industrial production first, the 1.4% m/m rise was stronger than most had anticipated (Refinitiv …
30th October 2024
LDP election loss heralds era of political instability Following its poor showing in yesterday’s Lower House elections, the LDP will need to form an untested coalition to remain in power which will undermine its ability to push through major pieces of …
27th October 2024
October surprise? The result of Japan’s Lower House election should be clear by early Monday morning. The new prime minister, Shigeru Ishiba, called Sunday’s vote to take advantage of a revival in the government’s popularity since he replaced Fumio …
25th October 2024
Strong US labour market should have soothed hard landing concerns Domestic data remain strong, but Bank has signalled that it won’t hike in October Bank will wait until December to hike again, but won’t tighten any further in 2025 The Bank of Japan …
24th October 2024
Flash PMI economic momentum is fizzling out The sharp fall in the composite PMI to a 2-year low supports our view that the strong rebound in activity that started in Q2 will be more muted across the second half of the year. Today’s flash estimate showed …
23rd October 2024
We argued last year that the relative strength of Japan’s stock market mostly reflected the weak yen rather than a fundamental transformation of its corporate sector. Developments since then suggest that we were right and with the yen set, in our view, to …
Government to increase supplementary spending Prime Minister Ishiba said this week that the customary supplementary budget due before the end of this year will be larger than last year’s ¥13tn (2.2% of GDP). This is probably motivated by the upcoming …
18th October 2024
Underlying inflation will remain around 2% for now While the resumption of electricity subsidies resulted in a plunge in headline inflation in September, inflation excluding fresh food and energy rose to a three-month high and should remain around 2% over …
Record growth in household incomes The Q2 household income data released this week were much stronger than we had anticipated. Indeed, both nominal and real disposable income have risen the most on record over the past year, leaving aside the temporary …
11th October 2024
Despite the surge in foreign visitors, Japan’s tourism industry is still struggling as domestic tourists have slashed holiday spending in the face of plunging real incomes. One of the sectors where the pandemic is still having a visible impact on Japan’s …
9th October 2024
Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. While the Bank of Japan has become more concerned about a global economic slowdown, the domestic conditions would warrant …
8th October 2024
Regular earnings growth will remain close to 3% Base pay rose the most since 1992 in August and we think it will continue to surge in the coming months. According to today’s preliminary estimate, labour cash earnings rose by 3.0 y/y in August. That result …
7th October 2024
Tankan upbeat, BoJ cautious The August activity data were a mixed bag, with retail sales rising for the fifth consecutive month but the 3.3% m/m plunge in industrial output was much weaker than expected. What’s more, firms’ production forecasts don’t …
4th October 2024
Tankan points to continued recovery This website has been updated with additional analysis since first publication. The slight rise in business conditions across all firm sizes in the latest Tankan suggests that the robust rebound in activity in Q2 will …
30th September 2024
Economic recovery lost some pace in Q3 While the plunge in industrial production in August creates some downside risks to our forecasts, the continued strength in consumer spending is encouraging. According to the preliminary estimate, industrial …
BoJ set to press ahead with "stupid" rate hikes Japan won’t have its first female Prime Minister after all as former defense minister Shigeru Ishiba won the runoff in the LDP leadership election against economic security minister Sanae Takaichi. In …
27th September 2024
The government tried to prevent the Bank of Japan from hiking interest rates in 2000 but that attempt was unsuccessful and the government has respected the Bank’s independence ever since. Renewed efforts to bring the BoJ to heel look unlikely now given …
24th September 2024
Flash PMI suggests continued rebound in activity The composite PMI remained at healthy level in September which suggests that the strong rebound in activity that started last quarter will continue across the second half of the year. Today’s flash estimate …
23rd September 2024
The Bank of Japan today signalled that it’s in no rush to tighten monetary policy any further and we’re pushing back our forecast for a final rate hike to 0.5% from October to December. As widely anticipated, the Bank kept its policy rate unchanged at …
20th September 2024
Takaichi leading in the polls According to a recent poll, Economic Security minister Sanae Takaichi is seen as the most suitable successor for departing Prime Minister Fumio Kushida. However, the LDP’s leadership elections next Friday will probably …
The Bank of Japan kept policy unchanged today as widely anticipated and we’re sticking to our forecast that it will deliver another 25bp rate hike at its October meeting. As correctly anticipated by all analysts polled by Reuters, including ourselves, the …
Underlying inflation will hover around 2% until early-2025 Underlying inflation rebounded in August and will remain close to the BoJ’s 2% target until early-2025, triggering another rate hike by the Bank at its October meeting. The 2.8% annual rise in …
Drag from net trade will moderate Q3 GDP growth Even though the trade balance held up much better than most had anticipated in August, net trade will still provide a large drag on Q3 GDP growth. The 5.6% y/y rise in export values was much weaker than the …
17th September 2024
Stronger yen reducing upside risks to inflation Developments over the past week seem to support the consensus view that the Bank of Japan will wait at least until December before hiking interest rates again. After all, the yen reached a fresh high against …
13th September 2024
Stronger yen has reduced upside risks to inflation, but labour shortages persist Recent data should have enhanced Bank’s confidence in its central scenario Bank will hike rates in October, but refrain from tightening any further in 2025 The Bank of …
12th September 2024
Getting an early steer on whether an economy has entered recession requires a holistic assessment of a variety of indicators to see if multiple variables are flagging recession at the same time. In this vein, we have created Economic Momentum Indicators …
9th September 2024
Regular pay growth hits 32-year high According to preliminary figures for July , regular wage growth jumped from 2.2% y/y to 2.7%, which is where we had expected it to peak in the second half of this year. And an alternative gauge that the Bank of Japan …
6th September 2024
Overview – The economy is on the mend and underlying inflation seems to be levelling off around the Bank of Japan’s 2% target. Accordingly, we still expect a final rate hike in October. But as inflation falls below target next year and the spring wage …
5th September 2024
Regular earnings growth will approach 3% While weaker growth in bonus payments weighed on overall wage growth, base pay rose by the most since 1992 in July and we think it will continue to surge in the coming months. The preliminary estimate released …
3rd September 2024
Activity rebounding, inflation levelling off at 2% The activity and inflation data released today increase our conviction that the Bank of Japan will press ahead with another rate hike. The rebound in industrial production and the rise in retail sales in …
30th August 2024
Economic recovery lost some steam in Q3 The July activity data suggest that the economic recovery continued in Q3 but shifted down at least one gear. The 2.8% m/m rise in industrial production in July was a touch weaker than the analyst consensus of 3.3% …
This page has been updated with additional analysis since first publication. Underlying inflation seems to settle around 2% The jump in the unemployment rate in July should reverse before long as economic activity rebounds. Meanwhile, the renewed pick-up …
The persistent strength in producer price inflation probably still mostly reflects the lagged influence of the surge in import costs rather than any pick-up in wage growth. If the yen keeps strengthening over the next couple of years, inflation will fall …
26th August 2024
Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. While underlying inflation will fall further below 2% over the coming months, we still expect the Bank to hike rates once more …
Underlying inflation falling below 2% According to a recent survey, 57% of analysts predict another rate hike by year-end, with one-third thinking it will happen in October and the remainder favouring the December meeting. In his parliamentary hearing …
23rd August 2024
Underlying inflation will fall below 2% With underlying inflation falling below 2% for the first time since 2022 and set to decline further, the case for further monetary tightening is starting to diminish. Headline inflation held steady at 2.8% in July, …
This page has been updated with additional analysis since first publication. Flash PMI points to further rapid rebound in activity The rise in the composite PMI to a 16-month high suggests that the strong rebound in activity that started last quarter …
22nd August 2024
While we expect inflation to fall below the Bank of Japan’s 2% next year, the Bank’s still very accommodative stance means that this alone won’t trigger interest rate cuts. We think it would require a major downturn in activity that results in a looser …
19th August 2024
