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While infections are now rising sharply nationwide – particularly in Tokyo where the Delta variant has the strongest hold – most of the vulnerable population are now fully vaccinated so we doubt restrictions will have to be tightened any further. …
22nd July 2021
Export tailwind weakening The rebound in exports showed further signs of slowing in June despite another high y/y growth rate caused by base effects. We think external demand will only provide a small tailwind to growth over the coming months as capital …
21st July 2021
The Bank of Japan today unveiled the details of its green lending facility, underlining that its focus is now moving away from addressing the pandemic towards longer-term structural issues . As universally anticipated, the Bank of Japan kept its interest …
16th July 2021
Fifth wave shouldn’t delay vaccine bounce While a delta-driven fifth wave has begun, we doubt restrictions will have be tightened much further and still expect them to be relaxed in late-Q3 once most adults are vaccinated. A state of emergency began in …
While new infections in Tokyo have picked up, the fourth state of emergency in the capital is partly a political move designed to placate fears that the Tokyo Olympics will trigger yet another virus wave. With the health situation in other prefectures …
12th July 2021
Security holdings may edge down as JGB purchases are tapered further Near term inflation forecasts to be revised up Climate change funds likely to be interest-free but impact will be small At its July meeting we expect the Bank of Japan to outline that it …
9th July 2021
There are signs that price pressures continue to strengthen. Producer prices of consumer goods are rising at a similar pace as they did at the peak in 2013 even though the yen has weakened far less sharply than it did then. The June manufacturing PMI …
Overview - Japan’s lagging vaccine rollout has finally reached cruising speed, which should allow a rapid recovery in activity over the second half of the year. The labour market may soon be as tight as it was before the pandemic, but we expect this …
7th July 2021
Strong wage growth on the horizon While the further acceleration in wage growth in May was again largely down to favourable base effects, we think wage growth will stay elevated as the labour market tightens and vaccines fuel a further recovery in …
6th July 2021
The economic data released this week were broadly consistent with our view that activity didn’t recover much in Q2. For a start, we estimate that retail sales volumes fell by another 1% m/m in May following the plunge in April, leaving them 5.3% below …
2nd July 2021
Strong recovery in H2 The further rebound in the Q2 Tankan supports our view that the economy’s disappointing start to the year won’t prevent vaccines driving a strong rebound in the second half of the year. And firms’ upbeat capital spending plans …
1st July 2021
Output to recover as car chip shortages ease The plunge in industrial output in May probably reflects chip shortages, but firms’ production forecasts point to a marked rebound over the coming months . The 5.9% m/m drop in industrial production was the …
30th June 2021
Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to …
29th June 2021
Spending and employment will soon bounce back While the further rise in the unemployment rate last month suggests on-off restrictions are taking their toll on the labour market, employment should bounce back strongly soon. Meanwhile, consumer spending …
Not all it was cracked up to be Media reports claiming that only around half of the funds raised in last year’s coronavirus stimulus packages have actually been spent support our view that government spending hasn’t been as big a prop to Japan’s economy …
25th June 2021
PM Suga unveiled his administration’s first mid- to long-term growth strategy – known as the “big-boned policy” – on Friday. While most themes have been carried over from the Abe administration, PM Suga’s economic strategy contains new angles such as a …
24th June 2021
Supply shortages to continue to hamper manufacturers Today’s flash PMIs suggest that the onus is on the services sector to drive the recovery over the coming months. The fall in the manufacturing PMI suggests that that sector won’t rebound much further …
23rd June 2021
While the Bank of Japan kept its major policy settings unchanged today and will continue to do so for the foreseeable future, it extended the deadline for applications to its emergency lending facility from end-September 2021 to end-March 2022. And it …
18th June 2021
Round three coming to an end With almost all state of emergency declarations set to be lifted on Sunday, our forecast that GDP will only rise by 1.0% q/q next quarter is looking too pessimistic. The declarations will be lifted in nine of the ten …
Upwards pressure on inflation from reopening to be muted Headline inflation rose sharply in May due largely to a pickup in energy inflation. But while we expect headline inflation to rise further over the coming months, in contrast to many other large …
Japan’s now fast-moving vaccine rollout is set to gather more speed. PM Suga’s one-million-a-day goal could be hit on a 7-day average basis as soon as tomorrow. 18-to-64-year-olds have from today been able to fill vacant slots at large-scale vaccination …
16th June 2021
Export tailwind fading Despite the spectacular y/y growth rates in May, the rebound in exports is showing signs of slowing. Indeed, we doubt external demand will provide much of a tailwind to growth over the coming months as global consumer goods demand …
October-November vaccine target The revised Q1 GDP figures and April wage data released this week suggest the economy was a little more resilient than first appeared in the early part of this year. And the economy is looking increasingly well set for a …
11th June 2021
Application deadline for emergency lending facility to be extended to end of year Security holdings set to remain flat as shrinking TB holdings offset rising JGB holdings Bank may only purchase ETFs when stock market falls sharply At its June meeting we …
Wage growth to stay strong While the marked acceleration in wage growth in April was largely down to favourable base effects, we think wage growth will remain strong throughout this year as the labour market tightens and overtime hours recover further as …
8th June 2021
Consumption weak, but industry recovering The economic data released this week were mostly disappointing. For a start, retail sales volumes plunged by 4.8% m/m in April. That marked the largest drop since last year’s nationwide state of emergency and left …
4th June 2021
Output unlikely to recover in Q2 The sharp fall in retail sales and weaker than expected rise in industrial production in April suggests the economy was subdued even before states of emergency were declared, supporting our view that the economy won’t have …
31st May 2021
Could waning fourth wave give way to a fifth? Japan’s fourth wave of coronavirus has broken as cases have fallen sharply over the past couple of weeks. However, hospitalisations and deaths continue to touch record highs. (See Chart 1.) Indeed, PM Suga …
28th May 2021
Unemployment rate to edge back down The unemployment rate spiked back up in April after a surprise sharp fall in March. However, we think the jobless rate will fall back to around 2.6% over the coming months as employment resumes its recovery. Employment …
Green shoots for second half of the year Due to the economy faring worse than we had expected in Q1, we’ve revised down our 2021 GDP forecast to from +3.0% to +2.0% (see here ). Much of the 1.3% q/q drop in GDP in Q1 was down to a 1.4% q/q in private …
21st May 2021
Manufacturing to keep recovering, services to remain weak Today’s flash PMIs suggest that the manufacturing sector will continue to recover as supply shortages are starting to ease. However, the plunge in the services PMI suggests that overall economic …
Underlying inflation to rise further, but not much Inflation fell in April but that was almost entirely due to a plunge in mobile phone tariffs. Sifting through that distortion, headline inflation rose in April and will float higher over the coming …
Exports to rise at slower pace While export volumes edged higher in April, the rebound in exports is slowing and external demand is unlikely to provide much of a tailwind to growth over the coming months. Meanwhile, the muted rise in machinery orders in …
20th May 2021
Producer prices are rising the most in years, but this largely reflects global supply shortages that should abate as vaccines are rolled out. We expect consumer price inflation to average a muted 0.6% next year. The resilience of goods demand during the …
19th May 2021
Off the back of the weak Q1 GDP data, we now expect output to only rise 2% across 2021. The economy is unlikely to recover much in Q2 as cases are close to record highs and calls for a nationwide state of emergency growing. Moreover, only 4% of the …
Slow vaccination progress taking its toll The economy contracted yet again during the second state of emergency. With the medical situation still worsening during the current third state of emergency and the vaccine rollout too slow, it will take until …
18th May 2021
Logistics still holding back vaccine rollout While the vaccine campaign has picked up pace, the number of daily jabs administered averaged just 0.15 per 100 people in the week to Thursday – far short of the 0.75 required to meet the government’ target of …
14th May 2021
The recent strength in Japan’s wage data largely reflects a compositional shift, as more lower-paid workers have dropped out of the workforce over the past year. With vacancies still far below pre-virus levels and firms no longer reporting severe staff …
10th May 2021
Restrictions will probably be tightened further With daily cases not coming down at the nationwide level, the government is set to expand countermeasures across more regions of the country. That will weigh on activity which has held up well in Q2 so far. …
7th May 2021
Wage growth has further to rise Wage growth turned positive for the first time since the pandemic began in March and we think it will accelerate further next month due to favourable base effects. Further ahead wage growth should remain strong due to the …
Q1 holding up well, but Q2 could yet be weaker At first glance, the 2.2% m/m rebound in industrial production in March suggests that the chip shortages that have been plaguing Japan’s manufacturing sector in recent months are easing. With industrial …
30th April 2021
Economy held up in Q1, but Q2 may yet be weaker The rebound in industrial production and the sharp drop in the unemployment rate in March are consistent with our view that the economy held up much better than most had anticipated during the second state …
The pandemic has lifted the ratio of corporate debt to GDP to the highest level since the late-1990s and the Bank of Japan now fears that defaults could rise sharply in struggling sectors. However, there are several reasons why this is unlikely to saddle …
29th April 2021
Consumer spending to flatline in Q2 The further rise in retail sales in March suggests that consumer spending was relatively strong in between the third and fourth waves of coronavirus. The strength in goods consumption in February and March won’t have …
28th April 2021
The Bank of Japan kept policy settings unchanged today as widely anticipated. And by predicting inflation well below its 2% target all the way to FY2023, the Bank signalled that Governor Kuroda won’t start to tighten monetary policy before his current …
27th April 2021
Round Three With the government set to this evening declare a state of emergency for the prefectures of Tokyo, Osaka, Hyogo and Kyoto, Japan’s economic recovery is likely to have stalled across the first half of 2021 (see here ). The emergency measures …
23rd April 2021
Inflation has further to rise Inflation continued to rebound in March mainly due to a further pickup in energy inflation. We think headline inflation will rise further and break past the lofty heights of +1% y/y later in the year. Headline CPI rose from …
Tokyo, Hyogo and Kyoto are soon expected to join Osaka in asking the central government to declare a third state of emergency. While together those four prefectures only generate a third of national output, the experience during the second state of …
21st April 2021
Tolerance band around 10-year yield target unlikely to be widened any further Bank has started to reduce its JGB purchases ETF purchases will be resumed during periods of market turmoil After tweaking a range of policy measures in March, the Bank of Japan …
20th April 2021
The fourth virus wave has so far been largely concentrated in Osaka and a state of emergency declaration in that prefecture alone would not prevent national output from rebounding in Q2. However, as the surge in cases in Osaka is driven by more contagious …
19th April 2021
