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The Bank of Japan’s assets are falling for the first time since it embraced large-scale easing a decade ago, as banks are repaying emergency funds they borrowed during the pandemic. However, this is not holding back an acceleration in credit to …
6th September 2022
Consumers to fall back on pandemic savings as real wages fall Labour cash earnings growth weakened slightly in July as growth in bonuses slowed and further moderation is in store from August with the end of the summer bonus season. Overall earnings growth …
Real wages to continue shrinking but spending will be supported by savings Labour cash earnings growth weakened slightly in July as growth in bonuses slowed and further moderation is in store from August with the end of the summer bonus season. Overall …
Adult population shrinking more quickly While Japan’s population peaked in 2010, it only edged down over the subsequent decade as positive net migration cushioned the decline in the “natural” population that was caused by deaths outstripping births. …
2nd September 2022
Q2 GDP to be revised down The smaller increase in capital spending reported in today’s “Financial Statements Statistics of Corporations” means that Q2 GDP will likely be revised downward slightly in next week’s second estimate. Capital spending excluding …
1st September 2022
Recovery to stall by September Industrial production made another stride towards pre-virus levels in July but the recovery should stall by September. Meanwhile, retail sales are in for a weak quarter despite a decent showing in July, as soaring inflation …
31st August 2022
Retail sales recovery in July belies underlying weakness Industrial production rose at a solid pace in July whereas most of the rise in retail sales values reflected soaring prices. While the manufacturing sector should bounce back this quarter, services …
Japan is facing its largest terms of trade shock since the second oil crisis in the early-1980s. While we don’t expect Japan to follow other advanced economies into recession, we’re slashing our 2023 GDP growth forecast from 2.6% to a below-consensus …
30th August 2022
Mounting indication that labour force has peaked The unemployment rate stayed unchanged in July and we do not see much room for further tightening in the labour market in 2022. The labour force shrank by 0.06% m/m in July, but with the adult population …
Not much room left for further tightening The unemployment rate stayed unchanged in July and we do not see much room for further tightening in the labour market in 2022. The labour force shrank by 0.06% m/m in July, but with the adult population shrinking …
Nuclear restarts still in the balance The timely Tokyo CPI showed that inflation jumped from 2.5% to 2.9% in August. That was partly due to the fading drag from last year’s mobile phone tariff cuts, but another key driver was the 29% y/y surge in …
26th August 2022
Soaring electricity and gas prices will help lift inflation above 3% by year-end. But with that boost unlikely to be sustained, the Bank of Japan won’t see a need to tighten monetary policy. The surge in food prices and the fading drag from last May’s …
24th August 2022
Manufacturing and services fall further while prices seem to peak August’s PMIs indicate a further slowdown in the manufacturing sector as demand slumped even further, while services continue to bear the brunt from the record Covid-19 wave. According to …
23rd August 2022
Slowdown continues as supply shortages and virus wave persist August’s PMIs indicate a further slowdown in the manufacturing sector as demand slumped even further, while services continue to bear the brunt from the record Covid-19 wave. According to …
22nd August 2022
Productivity growth slowing further The 0.5% q/q rise in Japan’s Q2 GDP brought output closer to its pre-virus peak, with productivity up by 0.4% y/y. However, the bigger picture is that the pandemic has further slowed the sluggish productivity gains …
19th August 2022
Inflation summit in sight, but BoJ will not budge Headline inflation was the highest since 1991 in July and we think it still has higher to climb. But this will not make the Bank of Japan budge on its ultra-easy monetary policy. Headline inflation climbed …
Trade deficit should narrow again Japan’s trade deficit widened to a record high in July but it should start to shrink over the coming months as supply shortages and commodity prices continue to ease. Export values grew by 19.0% y/y, slowing only slightly …
17th August 2022
Recovery will persist through second half Japan’s economy grew in Q2 driven mainly by private consumption, though the overall figure disappointed mainly due to fluctuations in stockbuilding that won’t last. The recovery should persist through Q3 and Q4, …
15th August 2022
Net migration worsened population decline Japan’s population fell by 726,342 (0.6%) last year. The figure would have been less alarming if not for negative net migration of 107,202, which is a trend we do not think will last. (See Chart 1.) Chart 1: Net …
12th August 2022
The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant …
10th August 2022
With a record virus wave sweeping across the country and consumer confidence slumping, we’re slashing our forecast for Q3 consumption growth from 0.8% to 0.2%. While the government has refrained from declaring another state of emergency, spending was …
8th August 2022
Shifting energy mix to renewables The Tokyo Metropolitan Government is planning to mandate the installation of solar panels on new homes. The plan follows a proposal at the national level to install solar panels on public buildings across Japan and …
5th August 2022
Minimum wage hike to provide support The jump in wage growth in June was mostly driven by a surge in summer bonus payments and the Bank of Japan’s 3% wage growth target will remain out of reach for a while yet . More positively, the strength in overtime …
The yen may have bottomed out against the dollar, but it is likely to remain weak for some time. That should boost Japan’s economy as higher revenues from exports and from overseas subsidiaries outweigh the resulting increase in import costs. Winning the …
2nd August 2022
Falling yields ease pressure on yield target Long-term government bond yields have retreated from their recent highs in both the US and Japan, with the yield on 10-year Japanese government bonds (JGB) now the lowest it has been since mid-March. (See Chart …
29th July 2022
Rebound in industrial output has further to run While industrial output bounced back strongly in June, the recovery in the labour market is stalling and consumer spending is faltering. One reason is that rising consumer prices are weighing on confidence. …
Real disposable household incomes will continue to be propped up until mid-2023 by fiscal transfers intended to offset the impact of virus disruption and rising inflation. But spending will continue to be held back as consumers remain cautious amid …
27th July 2022
Mobility softening as virus cases surge New Covid-19 cases are now nearly twice as high as they were at the peak of the Omicron wave in February. The government has so far ruled out declaring another state of emergency, which makes sense as the number of …
22nd July 2022
Manufacturing slowdown continues, services hit by fresh virus wave July’s PMIs suggest that the manufacturing sector is slowing as demand weakens, while the latest Covid-19 is starting to hit the services sector. According to today’s flash estimate, the …
“Core” goods inflation will accelerate further While inflation fell slightly in June, it will remain above the BoJ’s 2% target until early-2023, while underlying inflation will approach 2%. However, the Bank won’t respond with tighter policy. The weaker …
The Bank of Japan didn’t concede any ground to bond traders today but we still think there’s a good chance that it will widen the tolerance band around its 10-year yield target . The Bank kept its short-term policy rate at -0.1% and its 10-year yield …
21st July 2022
Trade deficit should narrow again Japan’s trade deficit in June was the largest it has been since 2014 but the recent fall in commodity prices suggests it will narrow again before long . The 19.4% annual rise in export values marked an acceleration from …
Overview – Supply shortages and continued virus caution will result in a weaker recovery in Japan than most anticipate. With wage growth sluggish too, the Bank of Japan won’t see a need to lift its policy rates. However, we expect the Bank to widen the …
18th July 2022
Tax revenues surging The Bank of Japan’s flow of funds figures show that the budget deficit was a still large 6.6% of GDP in the year to March. (See Chart 1.) In fact, we estimate that the deficit widened sharply in Q1 to around 10% of GDP in …
15th July 2022
Board will lift FY2022 inflation forecast but predict below-target inflation thereafter Interest rate targets will remain unchanged for years However, calm in bond markets provides window for tolerance band widening The Bank of Japan will signal prolonged …
14th July 2022
Capital spending plans strongest on record The most striking development in the Q2 Tankan was the surge in capital spending plans for the fiscal year that started in April. (See Chart 1.) Chart 1: Tankan Capital Spending Plans & Business Investment (% …
8th July 2022
Wage growth to settle around 1% The slowdown in wage growth in May was entirely due to volatile bonus payments. Nonetheless, we don’t expect wages to grow fast enough for the Bank of Japan to start tightening policy anytime soon . The 1.0% y/y rise in the …
5th July 2022
If Russia decided to end all exports of natural gas to Japan, we suspect that Japan’s GDP would fall by around 0.5%. However, the hit could be larger as there is now less scope to reduce energy usage than after the Great East Japan Earthquake and a bigger …
4th July 2022
Industrial output slumping The activity data released this week suggest that output won’t rebound as rapidly as we had been anticipating and we’re lowering our estimate of Q2 GDP growth from 1.5% q/q to 0.5%. The 0.6% m/m rise in retail sales values was …
1st July 2022
Tankan signals soaring capital spending Today’s Tankan survey suggests that while the services sector is benefitting from the easing of virus restrictions, the outlook for the manufacturing sector is worsening. Meanwhile, the labour market didn’t tighten …
Recovery disappointing yet again The plunge in industrial output in May suggests that Japan’s recovery is disappointing yet again. The upshot is that it will take until the second half of the year for GDP to surpass its pre-virus level . The 7.2% m/m …
30th June 2022
Consumer spending will disappoint yet again The disappointing rise in retail sales in May poses downside risks to our upbeat forecasts for consumption growth in Q2 . The 0.6% m/m rise in retail sales values in May marked the third consecutive rise but …
29th June 2022
Election puts focus on inflation Campaigning for the 10 th July Upper House election has formally begun. There is little question that the LDP will win – the only question is by how much. The scale of victory could have a bearing on the outlook for policy …
24th June 2022
Inflation to remain above BoJ target until early-2023 While inflation didn’t rise any further in May, it will remain above the BoJ’s 2% target until early-2023, while underlying inflation will approach 2%. However, the Bank won’t respond with tighter …
Supply shortages still biting but consumption bouncing back The PMIs suggest that supply shortages are still holding back manufacturing output and adding to price pressures. On a more upbeat note, the surveys also point to a strong pick-up in consumption …
23rd June 2022
While inflation is still far lower in Japan than in most places, rapid increases in the prices of some everyday purchases have made it a political focus. A Nikkei poll following the Bank of Japan’s meeting at the end of last week found that nearly half of …
21st June 2022
Yen to hit 140 even if yield ceiling raised While Bank of Japan Governor Kuroda insisted today that Yield Curve Control has no limits, defending the 0.25% ceiling on 10-year yields with the kind of heavy JGB purchases seen this week is unsustainable over …
17th June 2022
The Bank of Japan gave no ground at all to bond traders today as it left all its major policy settings unchanged. Governor Kuroda was resolute in claiming that Yield Curve Control has no limits in his press conference. But the likelihood is that defending …
Exports to stay soft in near term Export volumes recovered a bit in May, but they are likely to stay weak in the near term until supply shortages dissipate and allow exporting automakers to ramp up production again. The 15.8% annual rise in exports in May …
16th June 2022
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
