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Manufacturing sector should turn a corner soon December’s flash manufacturing PMI indicates that activity in the sector continues to shrink. However, the rebound in the global manufacturing PMI suggests that the sector will turn a corner soon. According …
16th December 2019
The BoJ has great expectations for fiscal package Revised GDP data released this week show that the economy approached the sales tax hike on 1 st October with more momentum than initially thought as growth was revised up from 0.1% q/q to 0.4% q/q. (See …
13th December 2019
Economy slowing not collapsing The Q4 Tankan was a mixed bag rather than the disaster that many analysts were anticipating. As such, it probably won’t convince the Bank of Japan to ease policy next week. The Tankan’s headline index for large manufacturers …
Substantial fall in business investment this quarter The sharp fall in “core” machinery orders in October supports our view that there will be a sizeable drop-off in business investment this quarter. We expect a 1.0% q/q fall in non-residential investment …
12th December 2019
The available data on retail sales, household spending as well as the Bank of Japan’s consumption activity index show that consumer spending fell broadly as much in October as in April 2014, when the sales tax was raised from 5% to 8%. Even so, our …
11th December 2019
No sign of gloom lifting yet November’s Economy Watchers Survey (EWS) points to a slight rebound in consumer spending last month. However, the deterioration in manufacturing and employment conditions underline that the economy will remain weak over the …
9th December 2019
Output set to shrink in 2020 While Japan’s economy expanded more sharply ahead of the sales tax hike than most had anticipated, output probably fell sharply in the fourth quarter. While the consensus expects the economy to keep expanding next year, we …
Falling profits point to weaker investment Data released this week showed that capital spending rose a strong 7.7% y/y in the third quarter. Unfortunately, that strength is unlikely to last. One reason is that investment was bolstered last quarter by …
6th December 2019
Wage growth unlikely to accelerate much further Wage growth remained relatively strong in October but with the labour market loosening, we think earnings growth will settle around 0.5%. Meanwhile, the plunge in “core” household spending in October points …
The fiscal stimulus package unveiled today will include much less fresh spending than the headline suggests. And the bulk of the spending will merely offset the unwinding of previous stimulus measures rather than result in a major fiscal expansion. Even …
5th December 2019
The IMF has suggested that the Bank of Japan could target shorter bond yields in order to steepen the yield curve and support the profitability of financial institutions. But the benefits to insurance firms and pension funds wouldn’t compensate for the …
3rd December 2019
Weak Q3 GDP growth set to be confirmed Today’s capital spending data suggest that business investment last quarter was in line with what was initially reported. Therefore, we don’t expect a major revision to GDP growth in next week’s second estimate. …
2nd December 2019
Retail sales and industrial output plunge The sharp falls in retail sales and industrial production in October suggest GDP might contract more sharply than the 0.7% q/q drop we have pencilled in for the fourth quarter. The 14.4% m/m fall in retail sales …
29th November 2019
Economy to contract sharply this quarter The sharp fall in industrial production in October suggests the economy might have been hit harder by the sales tax hike than we were expecting. And while the unemployment rate remained unchanged in October, we …
Plunge in sales after consumption tax hike not as bad as it seems Retail sales values fell more sharply in October than after previous sales tax hikes, but that largely reflects the smaller rise in prices this time around. Given that households brought …
28th November 2019
PM Abe surpasses PM Katsura Shinzo Abe surpassed Meiji era leader Taro Katsura to become Japan’s longest serving Prime Minister this week. Overall, his track record on the Japanese economy has been mixed. Under PM Abe GDP growth has hovered around 1%, …
22nd November 2019
Manufacturing sector remains in the doldrums The manufacturing PMI edged up in November but has yet to break out of the range it’s hovered in since the start of the year. However, the recent improvement in the global manufacturing PMI suggests that the …
Free childcare cancels out tax hike price boost The muted rise in inflation in October supports our view that the recent sales tax hike won’t derail consumer spending. And while underlying inflation should weaken further as spare capacity mounts, the Bank …
The tensions between Korea and Japan are unlikely to end anytime soon. That suggests that tourist arrivals may fall further and Koreans will continue to boycott Japanese consumer goods. However, Japan’s shipments to Korea are dominated by intermediate …
20th November 2019
Domestic demand weathered tax hike well Import volumes fell much less in October than after the 2014 sales tax hike, supporting our view that the tax hike will dent domestic demand less this time around. Export volumes also fell in monthly terms and we …
Consumption still likely to plunge in Q4 The preliminary estimate of Q3 GDP showed that growth slowed to 0.1% q/q, held back by a sizeable drag from stockbuilding and falling net exports. (See here .) While the 0.4% q/q rise in private consumption would …
15th November 2019
Downside risks to Q4 GDP diminishing The slowdown in GDP growth in the third quarter isn’t too worrying as it reduces the chances of a slump in output after October’s sales tax hike. As such, we reiterate our view that the Bank of Japan will keep interest …
14th November 2019
Business investment to slow after tax hike The continued fall in machinery orders suggests that the recent strength in capital goods shipments won’t last. While we expect the preliminary estimate of GDP due on Thursday to show a 1.0% q/q rise in …
11th November 2019
Fiscal rather than monetary stimulus on its way Bank of Japan Governor Kuroda argued this week that fiscal policy should play a larger role in supporting demand in the current environment. The Bank has recently been cutting purchases of bonds with very …
8th November 2019
Consumer spending probably slumped in Q4 The surge in household spending in September adds to the evidence of a last-minute spending spree ahead of October’s sales tax hike. While that raises the chances of a deep slump in the following months, we feel …
The jump in the unemployment rate in September is evidence that the labour market has entered a loosening phase. (See Chart 1.) The Bank of Japan reiterated that the output gap was its key gauge of price pressures in the economy at its meeting last week. …
7th November 2019
Bank brings output gap to the fore The Bank altered its forward guidance when it left rates unchanged this week. It had previously pledged to maintain the current extremely low levels of short- and long-term interest at least until spring 2020. Now it …
1st November 2019
Unemployment rate will keep rising The jump in the unemployment rate in September has further to run as new job offers are drying up. That increases the chances that the Bank of Japan will eventually have to cut interest rates. The labour force edged up …
The Bank of Japan left policy rates unchanged today and reiterated its readiness to ease policy if required. However, the background material to its “re-examination of economic and price developments“ was fairly upbeat. And by anticipating a further …
31st October 2019
Manufacturing sector to remain under pressure While industrial production contracted in the third quarter, robust business investment, a boost from net trade and soaring consumer spending should have ensured a strong rise in Q3 GDP. However, the outlook …
Private consumption will fall sharply in the fourth quarter The surge in retail sales ahead of the sales tax hike on 1 st October was as large as the one seen before 1997’s sales tax hike. We’ve pencilled in a 1.7% q/q slump in consumption in the fourth …
30th October 2019
Mixed bag of data not weak enough for a cut The upcoming meeting by the Bank of Japan is an important one as the Bank has indicated that “it is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price …
25th October 2019
Outlook for both domestic and external demand has worsened a little But financial stability concerns still stand in the way of interest rate cuts Bank will probably focus its efforts on steepening the yield curve via its bond purchases The economic data …
24th October 2019
Headwinds to manufacturing sector persist The decline in the manufacturing PMI to a three-year low in October is consistent with continued falls in industrial output. But a slump in inventories could be a sign that firms have underestimated the resilience …
Export growth to weaken again before long Export volumes probably rebounded in the third quarter which should provide some relief for the Bank of Japan. But as external demand is set to weaken further, we think export volumes will fall at a faster rate …
21st October 2019
Bank of Japan’s bond holdings on track to fall The Bank of Japan bought ¥5.2 trillion (¥63 trillion annualised) of Japanese government bonds in September and its purchase plan for October foresees purchases of just ¥4.9 trillion (¥60 trillion annualised). …
18th October 2019
Underlying inflation should fall towards zero next year The fall in inflation to a two-year low in September has further to run, increasing the pressure on the Bank of Japan to provide additional stimulus. The inflation data released today were all in …
A sharp rise in consumer spending in the run up to the 1 st October sales tax hike will almost certainly be followed by a plunge in consumption this month. However, on a quarterly basis the swing in spending is likely to be more muted than around previous …
17th October 2019
At first glance, the impact of this month’s sales tax hike on inflation and so on real incomes will be small. Headline inflation will probably rise by only 0.4%-point in October. But that’s partly because the impact will be offset by the government’s …
15th October 2019
Recent suggestions that the Bank of Japan will cut its policy rate have fuelled speculation that Japanese banks might be forced to start passing on negative interest rates to savers. But given that Japan’s city and regional banks do not have excess …
14th October 2019
Supermarket sales plunge after tax hike Daily data from supermarkets show that there was a sizeable drop in sales in the days following last week’s sales tax hike. But we are not convinced that this is a bellwether for the tax hike’s impact on the wider …
11th October 2019
Business investment to slow next year The continued fall in machinery orders in August suggest that a last-minute investment rush ahead of October’s tax hike is looking increasingly unlikely. Either way, business investment will probably slow next year as …
10th October 2019
Overview - We still think that the impact of October’s sales tax hike on consumption will be smaller than after previous tax hikes. But the outlook for external demand remains poor and firms have become less optimistic about the outlook for capital …
9th October 2019
Wage growth may pick up to 1% Growth in regular earnings has been broadly steady around 0.5% in recent months. And while we expect the unemployment rate to rise, wage growth may climb to 1.0% over the coming months. According to today’s preliminary …
8th October 2019
Not bad enough for another rate cut The rush of data released this week was a mixed bag. Overall, there still isn’t a clear-cut case for the Bank of Japan cutting interest rates when it “re-examines” its policy settings at the end of the month. Amidst the …
4th October 2019
Conditions holding up better than expected The latest Tankan survey shows that business conditions are holding up better than expected while the labour market remains very tight. And even though firms are turning more cautious about the outlook for …
1st October 2019
Business conditions prove resilient According to today’s Tankan survey, business conditions held up better last quarter than most had anticipated but the further deterioration in firms’ capital spending plans will cause some concern at the Bank of Japan. …
Unemployment to rise to 2.5% by year-end The continued tightness of the labour market is reducing the pressure on the Bank of Japan to provide additional stimulus but we expect unemployment to rise over the coming months. Both the labour force and the …
Tomorrow’s tax hike is likely to do less immediate damage to economic growth in Japan than previous increases. But it is still likely to trigger a sizeable fall in GDP in Q4. A rapid rebound next year is unlikely. The sales tax was introduced at 3% in …
30th September 2019
Consumption to fall sharply in Q4 The surge in retail sales in August underlines that a last-minute spending in spree ahead of the sales tax hike is still possible. That means that consumption may fall by more than the 1.3% q/q drop we’ve pencilled in for …
