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The Bank of Japan resisted the temptation to widen its tolerance band for 10-year JGB yields today, but it did outline that it will from now on conduct unlimited fixed rate auctions every business day until yields drop back comfortably below its ceiling …
28th April 2022
Activity to recover strongly across Q2 The strong rebound in retail sales in March suggests that the post-Omicron recovery got off to a good start. Meanwhile, industrial production edged up last month, but it will continue to be held back by supply …
With US Treasury yields set to keep rising over the coming year, it will become even more difficult for the Bank of Japan to defend its target for 10-year JGB yields. While we don’t expect the Bank to abandon Yield Curve Control altogether, we think it …
26th April 2022
Employment to continue to rebound Employment bounced back in March and it should continue to recover over the coming months as long as the reopening doesn’t go into reverse again. That should push the unemployment rate back down to its pre-virus level of …
We think the yen will drop even further as policy divergence widens. We now forecast USD/JPY to reach 140 by the end of this year, before dropping back as the Fed takes its foot off the gas in 2023. While it has stabilised over the past couple of days, …
22nd April 2022
BoJ intervenes again to cap 10-year yields With 10-year yields again at the ceiling of the BoJ’s 0±25bp target band, the Bank launched another fixed rate auction on Wednesday. Then, on Thursday, it announced consecutive fixed rate auctions for a total of …
All set for 2% Inflation picked up in March due to a further rise in utilities inflation and a jump in food inflation. And headline inflation will hit 2% in the April data released in just under a month’s time as most of the drag from mobile phone tariffs …
With the yen falling to a 20-year low against the dollar, talk of foreign exchange market intervention is growing. While we think the bar for any intervention is high , this Update answers some key questions. 1. Who decides whether to intervene? Bank of …
21st April 2022
Inflation will hit the Bank’s 2% target this month But BoJ won’t tighten due to stuttering recovery & weak domestic price pressures And Governor Kuroda won’t sacrifice Yield Curve Control for a stronger yen Despite coming under significant pressure in …
Shortages still hampering exports The export data were disappointing again in March, though exports are set for a strong rebound once supply shortages ease in hard-hit sectors such as automobiles. The 14.7% annual rise in export values in March was weaker …
20th April 2022
With all domestic restrictions gone and the booster rollout further severing the link between cases and deaths, the conditions for a reopening bounce are in place. Moreover, consumers have ample room to splash the cash. The household savings rate remained …
19th April 2022
Ban on Russian coal won’t lift energy prices Prime Minister Kishida’s decision last Friday to follow the EU in banning imports of Russian coal is unlikely to put much additional upwards pressure on Japanese energy prices. To be sure, Japan is the world’s …
14th April 2022
Business investment to bounce back from Omicron The sharp fall in machinery orders in February supports our view that business investment fell further in Q1 after a disappointing 2021. However, survey evidence and strong corporate profits point to firms …
13th April 2022
Yen could weaken further While part of the recent sharp weakening in the yen can be attributed to the recent deterioration in Japan’s terms of trade (see here ), we don’t think a rebound in the current account surplus will cause the yen to strengthen. …
8th April 2022
The yen isn’t obviously undervalued so it isn’t clear whether attempts to strengthen it would work. Most importantly, the Bank of Japan remains convinced that a weaker yen is beneficial for Japan’s economy. The yen has weakened by around 7% against the …
6th April 2022
Wage growth to accelerate further Japanese wage growth strengthened in February and we think it will accelerate further over the coming months as overtime and bonus pay continue to recover. However, as the post-Omicron rebound wears off wage growth should …
5th April 2022
BoJ back in control for now The Bank of Japan’s Yield Curve Control framework had to battle for survival to an extent never seen since its launch in 2016. 10-year Japanese Government Bonds (JGBs) have fallen back to 0.20% today after briefly breaking the …
1st April 2022
Economy will shake off Omicron hit The fall in the Q1 Tankan suggests that GDP almost certainly contracted last quarter. However, non-manufacturing sentiment held up better-than-expected during the Omicron wave and the labour market continued to tighten. …
Supply shortages will continue to hold back output Industrial production was broadly unchanged in February after two monthly falls that still left output well below its pre-supply shortages peak. The 0.1% m/m rise in industrial output was weaker than the …
31st March 2022
Overview - We expect Japan’s economic output to return to its pre-virus path by the end of the year. With the recovery from the pandemic complete, we expect GDP growth to slow from 2.7% this year to just 1.0% in 2024. The Bank of Japan won’t respond to …
30th March 2022
Consumer spending to recover strongly Retail sales dropped again in February, making it almost certain that consumer spending fell across Q1. Looking into Q2 though, private consumption is well set for a strong, booster-boosted rebound. The 0.8% fall in …
It hasn’t failed yet but the Bank of Japan’s need to return repeatedly this week to defend the ceiling of its yield target suggests that cracks are appearing in the structure of Yield Curve Control. If maintaining it requires large-scale purchases, the …
29th March 2022
Employment to rebound strongly Employment was unchanged in February after January’s sizeable fall. But with all domestic restrictions since lifted and activity resuming its recovery, employment is set for a strong rebound over the coming months which …
Kishida considering fresh support measures After a brief fall, the price of Brent crude oil has jumped again over the past week and we expect to remain around current levels of US$120 per barrel across the second quarter. Meanwhile, Japan’s biggest …
25th March 2022
War in Ukraine intensifying price pressures on firms The March flash manufacturing PMI suggests that the war in Ukraine has intensified supply chain disruption for firms. By contrast, activity in the services sector bounced back and should continue to …
24th March 2022
Governor Kuroda admitted last week that inflation could hit the Bank of Japan’s 2% target in April but stressed that “that in no way signifies there will be a revision of our current monetary policy”. Even if rising import costs cause inflation to …
21st March 2022
The Bank of Japan kept policy settings unchanged today and signalled that it is more worried about the negative impact of higher commodity prices on activity than about inflation spiralling out of control. Indeed, we expect the Bank to keep policy loose …
18th March 2022
The final round? With most of the recent news flow in Japan focusing on external threats such as the war in Ukraine and lockdowns in China, it’s easy to forget that the virus situation at home remains the most important factor determining the shape of …
Headline inflation to break 2% Inflation picked up in February due to another jump in utilities inflation and a strong rise in fresh food inflation. We think headline inflation will rise above 2% in April as some of the spike in energy prices due to the …
Business investment still languishing The fall in machinery orders in January suggests that business investment may not recover much this quarter from a disappointing 2021. But with corporate profits recovering strongly last year, firms have plenty of …
17th March 2022
Exports to disappoint again this quarter Exports fell again in February, though they should rebound over the coming months provided the recent Omicron outbreak in China doesn’t cause major supply chain disruptions to resurface. The 19.1% annual rise in …
16th March 2022
High savings rate to cushion the blow The Ukraine war is dominating the headlines, but the virus is still the main threat to Japan’s economy. Revised data show that Q4 GDP didn’t rebound as sharply as initially reported, leaving output still 1.1% below …
11th March 2022
War in Ukraine will lift inflation above 2% But Bank has made clear it will look through transitory, cost-push inflation Kishida will probably appoint a continuity candidate to replace Kuroda While the war in Ukraine will lift Japanese inflation to the …
10th March 2022
The recent spike in energy prices will lift import prices in Japan by around 10%, but the increase would be twice as large if Russian energy exports were banned. Japan’s flagship manufacturing sectors have sufficient pricing power to pass on those cost …
9th March 2022
Wage growth will remain around 1% The pick-up in wage growth in January was broad-based. However, with regular pay growth still around 0%, the coming energy-driven surge in inflation towards the BoJ’s 2% target won’t be sustained. The 0.9% annual rise in …
8th March 2022
Governor Kuroda’s successor to be more hawkish PM Kishida’s decision to replace arch-dove Kataoka Goushi with centrist Takata Hajime from Okasan Securities at the Bank of Japan could create a slightly less dovish policy board. But it probably won’t make …
4th March 2022
Employment to shake off Omicron Employment fell back yet again in January after a strong rebound in December. But while employment might have fallen a bit further in February due to the Omicron wave, it should soon bounce back fast and push the …
Consumer spending will fall this quarter The falls in both retail sales and industrial production in January confirm that the Omicron surge has knocked back the recovery. We think consumer spending will fall across this quarter, but it should rebound …
28th February 2022
Russia-Ukraine crisis highlights fossil fuel reliance The spike in energy prices following Russia’s invasion of Ukraine has highlighted just how reliant Japan still is on imported energy. Imported fossil fuels still made up 85% of Japan’s energy supply in …
25th February 2022
A spike in energy prices caused by significant disruption to Russian exports would lift Japanese inflation to 2% from April until the end of this year. However, the BoJ wouldn’t respond by lifting its policy rate as it wouldn’t be able to argue that …
23rd February 2022
If the Bank of Japan shortened the duration of its yield target, the impact on economic activity and inflation would probably be small but it could improve the long-term health of insurers and pension funds. It’s not clear though what could prompt such a …
22nd February 2022
Services spending jumped to only 3% below its pre-virus level in Q4 2021 despite having begun the quarter on a weak footing with curfews still in place for bars and restaurants across many regions in October. (See Chart 1.) It will have been knocked …
21st February 2022
Strong rebound from sizeable Omicron hit The February flash PMIs suggest that the Omicron wave has dealt a significant blow to economic activity. But with that wave now having broken, we think Japan’s economy is set for a rebound stronger than the …
Services spending rapidly recovering The 1.3% q/q rise in Q4 GDP was a touch weaker than anticipated but left output just 0.2% below its Q4 2019 level, a similar performance to the euro-zone or the UK. Particularly encouraging was the marked rebound in …
18th February 2022
Inflation will break past 1% in April Inflation slowed in January but that was entirely down to the base effects boost from the Go To Travel campaign disappearing. While underlying inflation is unlikely to reach 1% until later in the year, we think …
Exports to be a tailwind to recovery Exports were broadly unchanged in January despite Omicron surges at home and abroad. We think they’ll rebound further this year as external demand for capital goods rises further and motor vehicle exports resume their …
17th February 2022
Economy to bounce back fast from Omicron hit While Omicron will cause Japan’s economy to do little more than tread water this quarter following a rebound in Q4, output should soon resume its recovery and get back on its pre-virus trend by the end of the …
15th February 2022
Bank readies artillery to defend yield target Expectations for a global monetary tightening cycle lifted 10-year Japanese government bond (JGB) yields to just three basis points shy of the top end of the Bank of Japan’s ±0.25% target range yesterday. (See …
11th February 2022
With economic activity still depressed by recurrent virus waves, the sharp slowdown in immigration to Japan has yet to put much upwards pressure on wages. However, looking ahead we think some sectors could be hit by a rise in labour costs if the border …
9th February 2022
A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by …
8th February 2022
