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Corporate loan demand set to surge According to the Bank of Japan’s latest “Senior Loan Officer Survey”, which was conducted in the month to 10 th April, corporate loan demand was the strongest it has been since the global financial crisis and banks …
24th April 2020
Deflation to make unwelcome return Headline inflation was unchanged in March, but we suspect this may be the last positive reading for a while yet. Corona containment and the prior plunge in oil prices should translate into inflation turning deeply …
The government is encouraging manufacturers to return production of components from their overseas subsidiaries to Japan. Given the large scale of production that is now located abroad, a major reshoring of the industry isn’t realistic. And even if firms …
23rd April 2020
Surveys probably understating the severity of the downturn The slump in the composite PMI to a record-low in April points to GDP falling by at least 7% in Q2, but we think the survey is understating the severity of the downturn. The flash estimate of the …
Funding strains not severe so major expansion in asset purchases not on the cards But looming slump in activity will derail efforts to reach 2% inflation Bank may also cut policy rate from -0.1% to -0.2% The Bank of Japan will probably take some …
22nd April 2020
Trade flows are plummeting this quarter Exports fell sharply in March and are set to plummet this quarter as economic activity in most of Japan’s major trading partners has collapsed. The 11.7% annual fall in export values in March was more pronounced …
20th April 2020
A second wave of virus cases driven by rising infections in Tokyo and Osaka has triggered a major shift in economic behaviour. And while new cases in the two lynchpins of the Japanese economy have stabilised in recent days, yesterday’s declaration of a …
17th April 2020
State of emergency extended nationwide At first glance, the number of new coronavirus cases has started to drop back again in recent days. But this follows a familiar pattern as new cases tend do spike on the weekend and then fall back again. The smoother …
Regional banks in Japan will face mounting loan losses due to the virus outbreak. But as their linkages with other financial institutions are small, this won’t precipitate a financial crisis. The risk posed by the virus to the liability side of Japanese …
16th April 2020
State of emergency opens door for lockdowns The number of new coronavirus infections in Japan has accelerated rapidly recently. (See Chart 1.) The government this week declared a state of emergency in prefectures that generate 47% of Japan’s GDP. This …
9th April 2020
Consumption plunging to new depths The collapse in the Economy Watcher’s Survey (EWS) in March to its lowest level ever supports our view that consumption will fall off a cliff in Q2. Almost all indicators plummeted, suggesting the brief thaw in economic …
8th April 2020
Overview – Lockdowns will soon be imposed across much of Japan, triggering a decline of more than 10% in economic activity this quarter. The government’s latest fiscal package is intended to help firms stay afloat and to maintain employment while …
Business investment to plunge this quarter The slight rise in machinery orders in February suggests that business investment was weathering virus-related disruption well back then. But with measures to contain the virus severely harming domestic and …
The government today laid the groundwork for lockdowns in prefectures that generate nearly half of Japan’s economic output. The accompanying fiscal package has some impressive headline numbers attached but it is small set against the scale of the shock …
7th April 2020
Wage growth to turn negative before long Wage growth weakened a little in February and we think it won’t be long before it turns negative as the coronavirus outbreak generates large amounts of slack in the labour market. According to today’s preliminary …
Economy proved resilient in latest batch of data The robustness of the economy displayed in the data released this week is an encouraging sign but there is no doubt that coronavirus disruption will deal a severe economic blow over coming months. The …
3rd April 2020
Not quite the bloodbath expected, but worse to come While the Q1 Tankan survey held up slightly better than we were expecting, it still showed a marked deterioration in business conditions. And with sentiment set to deteriorate further as lockdowns across …
1st April 2020
Economy was holding up well before corona collapse Activity indicators show that the economy continued to expand in February. Unfortunately, domestic and external demand have since collapsed, so output is set to contract sharply this year. The …
31st March 2020
Concerns over Japan’s rising debt burden may prevent the government from pulling all the stops if the coronavirus outbreak escalates much further. As such, the chance that the Bank of Japan will provide a helping hand by directly financing public …
30th March 2020
Surveys point to slump in activity The March flash PMIs confirm our view that the coronavirus outbreak resulted in a sharp fall in economic activity. The output component of the manufacturing PMI fell by more than five points and now points to industrial …
27th March 2020
Tokyo Governor Yuriko Koike is mulling a lockdown for the capital in response to a rise in coronavirus cases. Taking into account the composition of Tokyo’s economy, we estimate that a lockdown in the capital would reduce national output by 5% for as long …
26th March 2020
With the global coronavirus pandemic set to last for months, it now looks almost certain that this summer’s Tokyo Olympics will be postponed. The impact on the economy this year of such a move should be small. Moreover, Japan is still likely to reap the …
24th March 2020
Services sector hit hard by coronavirus outbreak While the manufacturing PMI didn’t fall as sharply as we had anticipated in March, the plunge in the services sector underlines that the coronavirus outbreak will result in a sharp slowdown in activity. The …
Loose lockdown relaxed as Europe and US tighten Japan’s coronavirus infections have been relatively stable in recent weeks even as those in Europe and the US have soared. (See Chart 1.) Some thought that Japan’s low infection numbers might just reflect a …
20th March 2020
Inflation to turn negative this year Inflation fell in February, and we expect it to moderate sharply this year as capacity shortages evaporate and the coronavirus opens up slack in the economy. By far the deepest downturn since 2009 should cause core …
19th March 2020
Surveys and timely data from late-February onwards show that the economy is in the midst of a deep downturn. Cinema sales, restaurant reservations and the Economy Watchers Survey all point towards consumer spending having collapsed at the end of last …
18th March 2020
Resilience in exports won’t last Exports bounced back in February even as China’s economy came to a standstill. But with the coronavirus now disrupting economic activity across the globe, that resilience won’t last. The 1.0% annual decline in export …
The measures announced by the Bank of Japan today lack teeth and we still expect policymakers to cut the short-term policy rate over the coming weeks. The Bank of Japan brought forward the meeting scheduled to end on Thursday to today but decided not to …
16th March 2020
Business investment set to fall sharply this year The slight rise in machinery orders in January suggests that business investment was recovering – albeit slowly – before the coronavirus began to dent economic activity from all angles. We think a sharp …
Activity indicators plunging amid virus There was a 16% y/y jump in grocery sales in the week beginning 24 th February and the Economy Watchers Survey (EWS) conducted at the same time similarly showed that supermarkets reported stronger activity. But this …
13th March 2020
Domestic demand slumped after sales tax hike and the recovery is being snuffed out Coronavirus outbreak is pushing the economy into recession Bank to follow other major central banks and cut policy rate from -0.1% to -0.2% The Bank of Japan has limited …
12th March 2020
We suspect that Japan’s government won’t intervene in the foreign exchange market until the yen hits 90 against the dollar. The key point is that foreign exchange intervention probably won’t prevent the yen from strengthening if risk aversion intensifies …
10th March 2020
Manufacturers in Japan are on the whole less dependent on imported components than those in other major rich economies and so are less vulnerable to global supply chain disruption. But there’s a mounting risk that the spread of the coronavirus within …
9th March 2020
Spread of coronavirus will deal severe blow to economy The plunge in the Economy Watcher’s Survey (EWS) in February to its lowest level since the 2011 tsunami suggests that the intensified spread of the coronavirus will cause consumer spending to fall …
Economy is probably in recession A disastrous Q4 following the sales tax hike was shown to have been even worse in the second estimate of GDP. That supports our bearish view that output will fall by 1% this year. It also further raises the chances of …
Downside risks to our already bearish forecasts It’s now looking likely that Japan’s economy will contract again this quarter, which would mean the economy is in recession for the first time since 2012. The biggest drag in Q1 is likely to have come from …
6th March 2020
Wage growth to remain soft as labour market loosens The sharp rise in wage growth in January was down to yet another sampling distortion. A more accurate measure showed that wage growth softened and we expect labour earnings to continue to disappoint this …
Two developments over the past couple of days have caused us to change our thinking on the outlook for monetary policy in Japan. We now assume that the coronavirus will spread widely across most of the world’s economies including Japan and that this will …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
We suspect that the BoJ’s response to the coronavirus will mostly consist of liquidity provision to banks and a renewed acceleration of its ETF purchases. We are not forecasting a cut in the Bank’s short-term policy rate. The Bank of Japan today issued a …
Virus likely to drag on exports and consumption The January activity data released today showed that the economy was recovering from the sales tax hike and the global economic slowdown on the eve of the coronavirus outbreak. What’s more, firms remained …
28th February 2020
Rebound in industrial production unlikely to last The coronavirus is likely to knock off course the slight recovery observed in the manufacturing and retail sectors last month. As such, we expect the unemployment rate to rise further over the coming …
With the number of confirmed infections of the new coronavirus rising in Japan, cancellation or postponement of this year’s Tokyo Olympics is becoming a possibility worth considering. The key point in terms of the economic impact of such a move is that …
21st February 2020
Activity data disappoint across the board We have long argued that Japan’s economy will shrink this year and the recent string of bad news has only made that outcome more likely. But we still don’t expect the Bank of Japan to respond with more policy …
Damage from coronavirus starting to show The renewed drop in the manufacturing PMI coupled with a slump in the services PMI suggests that the coronavirus has started to take a toll on Japan’s economy. The fall in the Jibun Bank flash manufacturing PMI …
Core inflation to fall this year Headline inflation edged down in January and we expect it to moderate further this year as capacity shortages diminish. A contraction in GDP this year should lead to easing price pressures, offsetting a boost to prices …
The profitability of Japan’s regional banks is likely to deteriorate further over the next few years. However, there’s little evidence of asset price bubbles and corporate balance sheets have continued to strengthen. In our view, even a shock akin to the …
19th February 2020
Sizeable drag on GDP growth from net trade in Q1 Exports fell by less than expected last month but net trade is set to be a major drag on GDP growth this quarter. Coronavirus-related disruption should contribute to net trade knocking around 0.6%pts off …
A slump in tourist arrivals has been the initial channel through which the virus outbreak in China has harmed Japan’s economy and will most likely knock around 0.4%-pts off GDP growth in Q1. As long as disruptions to supply chains and goods exports are …
18th February 2020
While October’s sales tax hike and Typhoon Hagibis were partly to blame for the sharp drop in manufacturing output in Q4, the bigger picture is that any recovery this year rests on a pick-up in external demand. Japanese industrial production fell …
17th February 2020
