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Yield spreads widen as Kuroda targets short end We expect the Bank of Japan’s “reverse twist” to intensify after the next Board meeting. On balance, we still think that the Bank will refrain from cutting short-term interest rates, but we’ll closely watch …
27th September 2019
The Bank of Japan’s announcement that it will “re-examine economic and price developments” at its meeting at the end of October has been widely interpreted as opening the door to a shift on policy. In this Update , we highlight the indicators that will …
24th September 2019
Sales tax hike looming Japan’s sales tax will be raised from 8 to 10% in 11 days’ time. We expect the hit to consumer spending to be significant but less severe than after previous tax hikes. Countermeasures such as a reduced tax rate for certain items …
20th September 2019
Slowdown in inflation has further to run The slowdown in headline inflation in August has further to run once the sales tax hike leads to weaker price pressures. We think that inflation will eventually fall which will raise the clamour for monetary …
The Bank of Japan’s pledge today “to reexamine economic and price developments” at its next policy meeting has further fuelled speculation of a rate cut in October. Governor Kuroda added in his press conference that the Board “has become more eager to …
19th September 2019
Drag from net trade to ease in Q3 The fall in exports in August still leaves open the possibility of a rebound across the third quarter which means that the previous drag that net trade had on growth may have eased. The big picture though, is that exports …
18th September 2019
Business surveys suggest that conditions in manufacturing worsened again in August. The Cabinet Office’s survey-based index of manufacturing conditions fell to its lowest level since 2011, when the country was recovering from the Great East Japan …
17th September 2019
Yield curve worries ease Long-term government bond yields have rebounded around the globe this week, with 10-year Japanese government bond (JGB) yields climbing to -0.19% today from a recent trough near -0.30%. (See Chart 1.) Chart 1: 10-year JGB Yields …
13th September 2019
GDP growth has held up and the labour market remains extremely tight Leading indicators suggest that the economy has turned for the worse But concerns over financial stability still stand in the way of interest rate cuts There are mounting signs that the …
12th September 2019
Business investment to slump after tax hike The drop in machinery orders in July didn’t reverse the jump in June and we still think that business investment rose at a strong pace in Q3. However, a renewed fall after October’s sales tax hike is likely . …
‘When the mountain is low, the valley is low’ We’ve been arguing that the drag from next month’s sales tax hike will be less severe than the one after previous tax hikes. Finance Minister Aso noted earlier this week the absence of a spending rush as …
6th September 2019
Wage growth should settle around 1% The drop in labour cash earnings in July was driven by volatile bonus payments whereas regular earnings accelerated. While we expect the unemployment rate to rise again before long, wage growth should settle around 1%. …
FSA demands change in regional banking sector The regulatory drive for consolidation in Japan’s regional banking sector is gathering pace. The Financial Services Agency (FSA) announced this week a series of carrot and stick measures to stimulate …
30th August 2019
Labour market has reached a turning point The weakness in retail sales in July underlines that consumers have yet to bring forward spending ahead of October’s sales tax hike. That suggests that consumption won’t fall off a cliff once the tax has been …
The trade deal that the US and Japan have negotiated won’t provide major benefits for Japan’s economy. And while it seems to have reduced the risk that the US imposes any tariffs on Japanese car imports, the deal faces an uncertain future in the US …
27th August 2019
Hiring subsidies for Ice Age Generation This week it was revealed that the government plans to offer a new set of hiring subsidies to help workers find regular employment. This could provide a boost to aggregate wages. Businesses offering training will …
23rd August 2019
Rise in underlying inflation won’t last Headline inflation fell in July despite a rise in underlying inflation. Allowing for the impact of policy moves, we think that underlying inflation will fall towards zero before long. Headline consumer price …
Output per worker increased for the first time since 2017 last quarter. (See Chart 1.) GDP growth was stronger than expected at 1.1% y/y despite a sharp moderation in employment growth. Employment growth averaged only 0.7% y/y, down from over 2% late last …
21st August 2019
Drag from net trade to persist Today’s external trade figures show that the slump in export volumes is abating. But with imports set to soar ahead of the sales tax hike, net trade will probably remain a drag on GDP growth in Q3. The 1.6% y/y fall in …
19th August 2019
Reiwa celebrations or pre-tax spending rush? The preliminary estimate of Q2 GDP showed a strong 0.4% q/q increase in output. One of the drivers was a 0.6% q/q jump in private consumption. Much of the media coverage has attributed this to consumers …
16th August 2019
Business investment to slump after tax hike The surge in machinery orders in June supports our view that investment spending will continue to expand at a rapid pace in the third quarter. However, we expect a renewed drop after October’s sales tax hike. …
14th August 2019
Growth set to slow after tax hike GDP rose more quickly than most had anticipated in the second quarter and the details were unequivocally strong. And while the economy will lose momentum after October’s sales tax hike, our view remains that the Bank of …
9th August 2019
Yen climbs to 17-month high against dollar Two months ago we predicted that the US would eventually impose tariffs on all imports from China. (See here .) Indeed, President Trump announced last week that he will impose an additional 10% on the remainder …
8th August 2019
While Japan’s government will almost certainly refrain from direct intervention on the foreign exchange markets to stem the recent appreciation of the yen, we can’t rule out that the government’s pension fund will buy more foreign assets. The key point …
6th August 2019
Wage growth should settle around 0.5% Wage growth accelerated in June as regular earnings stopped falling and summer bonuses rose. However, wages increased even faster once we allow for sampling changes that will probably only disappear from the beginning …
Tax hike countermeasures progressing well Implementation of the government’s flagship measure to cushion the blow of October’s sales tax hike is ahead of schedule. Hiroshige Seko, the Minister of Economy, Trade and Industry, said this week that 240,000 …
2nd August 2019
Growth probably slowed in Q2 While industrial production rebounded in the second quarter, we still expect GDP growth to slow. Meanwhile, we think that the labour market won’t remain as tight as it is now as subdued economic activity takes its toll on …
31st July 2019
The Bank of Japan projected a dovish tone today, promising further easing if needed. But unlike other major central banks the BoJ still seems a long way from following that up with action. We think it will refrain from lowering interest rates for the …
30th July 2019
Private consumption to remain strong ahead of tax hike Retail sales values were flat in June but broader measures of consumer spending still suggest that private consumption picked up in the second quarter. Some of that strength in Q2 was probably due to …
29th July 2019
Korea trade spat starting to hurt inbound tourism Local media report that many South Koreans are starting to boycott Japan as a holiday destination. One of South Korea’s largest travel agencies said that bookings of trips to Japan were down 50% y/y in the …
26th July 2019
Credit is growing at its strongest rate since the early 1990s. Given that investment growth has started to slow, the spike in private debt seems odd at first glance but much of it appears to have been driven by firms borrowing to seek higher rates of …
25th July 2019
The recent drop in corporate profits appears to have been driven by weak global demand rather than by rising wages. Accordingly, profits are likely to fall further over coming months even if we’re right in expecting the unemployment rate to pick up. The …
24th July 2019
Inflation remains well below target so Bank will pledge to keep rates low for longer Domestic demand set to slow after tax hike and external demand to soften But concerns about financial stability should forestall additional easing We expect the Bank of …
23rd July 2019
The surge in the participation rate that has boosted employment by nearly a tenth since 2012 and thereby underpinned stronger economic growth is running out of steam. This will have a big impact, shaving close to a percentage point off Japan’s sustainable …
22nd July 2019
Spring wage negotiations deliver stable pay hikes This year’s spring wage negotiations between unions and employers (Shunto) ended with a ¥1,560 increase in base pay, equivalent to a 0.5% pay hike, the same as last year. That’s a bit disappointing given …
19th July 2019
Underlying inflation may fall to zero by early next year Inflation was unchanged in June and while the consumption tax and the introduction of free childcare will muddy the waters, we expect underlying inflation to fall towards zero in 2020. The 0.7% rise …
Drag from net trade to persist The sharp narrowing of the trade deficit in June isn’t indicative of developments in trade volumes across the second quarter as import volumes outpaced export volumes. We expect the resulting drag from net exports on GDP …
18th July 2019
The Bank of Japan’s annual purchases of JGBs have dropped to less than half of the official target of “about 80 trillion yen.” (See Chart 1.) Since the launch of yield curve control in September 2016 the Bank has slowed its JGB purchases as higher …
17th July 2019
Japan’s government will probably expand the number of operating nuclear reactors from nine now to 17 by 2030. While the impact on the trade balance will be tiny, electricity prices may fall significantly. Japan has made steady progress in restarting its …
15th July 2019
Yokohama-Chiba Bank tie-up A reorganisation of Japan’s regional banking sector could be brewing as two of its largest banks announced a tie-up this week. Regional banks’ lending margins and capital ratios have been steadily declining. While ultra-low …
12th July 2019
Froth has returned to Japan’s housing market, especially in urban areas where prices are now back to levels seen just before the collapse of the property bubble in the early nineties. A price correction is likely at some point, but the impact on the …
10th July 2019
Wage growth should pick up in 2020 Wages kept falling in May even though the labour market remained very tight. That reflects sampling changes which have lowered the aggregate wage level. As those distortions start to fade, wage growth should pick up even …
9th July 2019
We suspect that the current tensions between Korea and Japan will subside after the Upper House elections. Even if Korean consumers decided to boycott Japanese products, the impact on Japan’s economy would be small as the bulk of Japan’s exports to Korea …
8th July 2019
Overview – Following a strong start to the year, GDP growth is set to slow as domestic demand drops after the sales tax hike and external demand softens further. We think that the unemployment rate will creep higher next year, keeping a lid on price …
Business investment set to slow further Despite a slump in May, machinery orders point to broadly stable capital spending in the second quarter. Even so, we expect investment growth to slow sharply over the coming quarters. The 7.8% m/m plunge in …
Abe getting tired of fiscal tightening The Q2 Tankan survey released this week was a mixed bag as it showed a further sharp deterioration in business conditions for manufacturing firms. By contrast, business conditions outside manufacturing worsened only …
5th July 2019
Economy may be past the worst The Tankan’s all industry index fell at a slower pace in the second quarter than in the first, which suggests that the economy may be past the worst. That said, the slowdown has started to ease capacity shortages and dampen …
1st July 2019
LDP set to dominate Upper House elections PM Abe’s cabinet announced on Wednesday that the Upper House elections will take place on 21 st July. In April, the LDP lost two seats in the Lower House in by-elections in Osaka and Okinawa. However, it still …
28th June 2019
Economy probably continued to expand in Q2 While the labour market remains tight, the drop in the job-to-applicant ratio is an early sign that it will slacken over coming months. Meanwhile, the jump in industrial production and capital goods shipments in …
Private consumption gaining momentum The solid rise in retail sales values in May suggests that consumption growth will be quite strong in the second quarter and we think that it will continue to expand at a rapid rate in the third quarter. The 0.3% m/m …
27th June 2019
