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Governor Koike sounds the alarm This week’s raising of the alert level in Tokyo to red – its highest level – has no major automatic consequences. But it brings the city government to the brink of once again asking some businesses to close. New infections …
17th July 2020
The Bank of Japan kept policy settings unchanged today as widely anticipated and we think it won’t announce major new measures over the coming months . The Bank’s decision to keep both its short-term policy rate as well as its target for 10-year …
15th July 2020
Overview – Japan’s economic recovery has been threatened by a new wave of COVID-19 cases but the government probably won’t respond with drastic restrictions on activity. Output should therefore recover over the coming months, but social distancing …
9th July 2020
Renewed outbreak in Tokyo manageable for now New confirmed coronavirus cases in Tokyo hit a record high of 224 today, exceeding the peak of 206 during the state of the emergency in April. While authorities in Australia and the US are responding to renewed …
Business investment to fall sharply despite slight rise in orders The slight rise in machinery orders in May suggests that non-residential investment may have slumped a little less than we were anticipating in Q2. However, with business sentiment …
Lending schemes still well below ceilings and appetite for bank lending has declined Strains in foreign currency funding markets subsiding Concerns about financial stability will prevent rate cuts The Bank of Japan is likely to leave policy settings …
8th July 2020
Wage growth to weaken further even as household incomes rebound Wage growth weakened further in May, but we think household incomes are recovering as furloughed workers either return to work or receive their mandatory leave allowance. According to today’s …
7th July 2020
May activity data consistent with our views The May activity data were weaker than most had anticipated but broadly consistent with our below-consensus forecast of a 9% q/q drop in Q2 GDP. While consumption soared in the US and many European countries …
3rd July 2020
The chances of PM Abe serving a fourth term as LDP leader have fallen considerably in recent months. Instead, speculation has turned to whether Mr Abe will be able to hang on as Prime Minister for the duration of his third term as party leader, which …
1st July 2020
Business investment to hold up well While business conditions collapsed in the Q2 Tankan, with economic activity now recovering that probably marks the trough. And surprisingly resilient investment forecasts for the upcoming fiscal year suggest weak …
Household incomes will continue to rebound The sharp drop in the number of furloughed workers in May supports our view that household incomes will rebound in the second half of the year. And while industrial production plunged again in May, it should also …
30th June 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Rebound in consumption will continue to disappoint The subdued rise in retail sales in May suggests that the lifting of the state of emergency didn’t provide a big boost to consumption and we reiterate our forecast of a 9% q/q plunge in Q2 GDP . And the …
Money stuck in the admin pipeline The flagship measure of April’s supplementary budget was the plan to distribute ¥100,000 to every resident. That was deemed a faster and more effective way of lifting consumption out of its coronavirus slumber than the …
26th June 2020
Premature fiscal policy tightening is part of the reason why inflation did not gain much momentum after the BoJ launched large-scale quantitative easing in 2013. But the main reason why inflation has remained stubbornly low is that the huge expansion in …
23rd June 2020
Services sector set to recover further While the manufacturing PMI weakened a little further in June, the rebound in the services PMI has further to run as virus-related restrictions are eased . As usual, the surveys were conducted since the middle of …
Bureaucracy hampering wage subsidy programme Some companies which have had to furlough workers appear to have judged that applying for the government’s employment adjustment subsidy is more trouble than it’s worth. The labour ministry simplified the …
19th June 2020
Underlying inflation will be negative across H2 Headline inflation was unchanged last month but the slow recovery in demand over the coming months should cause excess capacity to rise further. As such, we expect inflation to turn consistently negative in …
The recent spike in COVID-19 cases in Tokyo linked to nightlife establishments in Shinjuku underlines just how slow the road back to normality could be. Renewed outbreaks are likely to prevent a straightforward and swift economic recovery. Indeed, many …
18th June 2020
May should prove nadir for trade Import values fell much more than export values in May but that was mostly due to lower crude oil prices. Across Q2, net trade provided a sizeable drag on GDP growth. However, conditions should improve over the coming …
17th June 2020
The Bank of Japan today expanded its lending facilities further. The total amount of support for corporate funding is now equivalent to nearly 20% of the debt of non-financial firms and we don’t expect any further increases over the coming months. As …
16th June 2020
All restrictions to be lifted from next Friday The Tokyo Metropolitan Government announced on Thursday that it will join the rest of the country and follow the central government’s plan to lift all requests for businesses to close from the 19 th June. …
12th June 2020
Caught out with high levels of debt during the 1991 asset price crash, many Japanese firms then accumulated significant rainy-day funds to shield themselves against a future crisis. That trend intensified after the global financial crisis – when …
11th June 2020
Slump in orders points to sharp fall in business investment The large fall in machinery orders in April supports our forecast that non-residential investment will slump in Q2. With business confidence subdued, a recovery before the end of the year is …
10th June 2020
Existing lending schemes still well below ceilings But latest supplementary budget foresees additional subsidised lending Bank to secure funding for commercial lenders by further increase in lending schemes The Bank of Japan has already done a lot to …
9th June 2020
Wages falling already Wage growth turned negative in April at the height of efforts to contain the virus, and we expect wages to fall further over the coming months. According to today’s preliminary estimate, labour cash earnings growth fell from +0.1% to …
Recovery will be slow going The upward revision to Q1 GDP displayed in the revised estimate is cold comfort given that output is plummeting this quarter. We expect GDP to fall by another 9% this quarter. According to the second estimate released today, …
8th June 2020
Unprecedented slump in services spending We learned last week that retail sales plunged 9.6% m/m in April while Japan was in a state of emergency. Household spending on services is usually more stable than retail sending. But it has also been hammered …
5th June 2020
Many firms have furloughed employees during the state of emergency and stopped paying wages. But with the economy now opening up again and the government’s employment subsidy scheme starting to be used more widely, labour income should bounce back even if …
3rd June 2020
Consumption plunging in April The slump in activity in April was worse than most had anticipated. While domestic demand will rebound now that the state of emergency has come to an end, we think it will take until 2022 for output to return to pre-virus …
29th May 2020
Economy dealt severe blow in April, but road to recovery started in May The huge fall in industrial production and retail sales in April support our below-consensus forecast that the economy will contract by 12% q/q this quarter. The unemployment rate is …
The large supplementary budget drafted by PM Abe’s Cabinet today lifts fresh government spending in response to the virus to around 8% of GDP. That should provide the platform for a strong recovery in the second half of the year, provided infections don’t …
27th May 2020
Imports proving resilient to corona calamity The strength of imports in March and April suggests that our forecast for a double-digit drop in import volumes this quarter was too pessimistic. The Bank of Japan’s data released on Thursday showed a 4% m/m …
22nd May 2020
The Bank of Japan launched a new lending facility today to support bank lending to small businesses and we suspect its measures will now be sufficient to secure the financing needs of firms throughout the coronavirus crisis. As widely anticipated, the …
Inflation drops sharply and will turn deeply negative Headline inflation turned negative in April for the first time since 2016 adjusting for the impact of October’s sales tax hike. We expect it to weaken further over the coming months as services and …
Slump starting to abate, but rebound will be slow going The small pick-up in the composite PMI in May suggests that activity is no longer collapsing as dramatically as it was in April, but the survey doesn’t point to a rebound in output yet. According to …
21st May 2020
Exports were plummeting already in April Exports plunged in April and are set to continue falling sharply for a while yet with economic activity in Japan’s main trading partners remaining extremely depressed. The 21.9% annual fall in export values in …
Non-residential investment will collapse Machinery orders held up surprisingly well in March but we already know from the national accounts that business investment was sputtering at the end of Q1 with much darker skies awaiting in Q2. The 0.4% m/m fall …
20th May 2020
Economy in recession before full force of corona containment hit The fall in output in the first quarter suggests the spread of the virus had already dealt a significant blow to economic activity in March with much worse to come in Q2. A double-digit fall …
18th May 2020
Economic activity remained severely damaged by coronavirus containment efforts in early May. In particular, the retail sector usually receives a substantial boost during Golden Week but the number of restaurant goers was extremely low throughout this …
15th May 2020
State of emergency ending in most prefectures Japan declared a state of emergency on 6 th April and extended it nationwide on 16 th April. During the state of emergency, citizens were asked to stay at home This helped reduce the number of new coronavirus …
This should be as bad as it gets The further fall in the Economy Watcher’s Survey (EWS) in April underlines that consumption will be extremely weak across Q2. But while all components fell to new depths, this should mark the trough in business conditions. …
13th May 2020
Some regions moving to relax restrictions While the government confirmed this week that the nationwide state of emergency will be extended until 31 st May, there are signs that activity may pick up before that date in some regions. Moreover, PM Abe …
8th May 2020
Wage growth won’t be positive for much longer Wage growth slowed sharply in March and with the unemployment rate set to rise considerably over the coming months we think it will turn deeply negative before long. According to today’s preliminary estimate, …
Household spending evaporating Consumer confidence sank to a record low in April. That lends further credence to the view that a consumption-led plunge in economic activity is underway this quarter. We are forecasting a 12% q/q contraction in GDP in Q2. …
30th April 2020
Consumption plummeting as people stay at home Japan’s state of emergency is scheduled to end on Wednesday 6 th May but press reports suggest the government will extend it by one month tomorrow. The number of new coronavirus cases across Japan has fallen …
Corona containment harmed activity in March with much worse to come While both industrial output and retail sales held up a little better than we expected in March, they still fell sharply. And with efforts to contain the virus having been stepped up …
Most of the fresh spending in PM Abe’s fiscal package will not provide meaningful support to employment. But as was the case during the financial crisis, the government’s employment adjustment fund should help ensure that unemployment doesn’t spike as …
28th April 2020
Unemployment rate will rise sharply The unemployment rate rose in March and it’s set to spike much higher over the coming months. The labour force fell -0.1% m/m, while employment dropped -0.16% m/m. In annual terms, both rose just 0.1%. (See Chart 1.) As …
The Bank of Japan today scaled up its measures to ease corporate and household financing strains significantly. However, the Board didn’t cut the policy rate even though all members expect a slump in activity. With our forecasts not miles away from the …
27th April 2020
