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Japan’s government appears to be lining up a stimulus programme to prevent an economic downturn after the Tokyo Olympics next year. While increased public spending would provide a welcome boost to GDP, we don’t believe there’s any particular reason to …
21st June 2019
The slowdown in May’s inflation was largely broad-based, and we expect it to turn negative by the end of the year. However, the Bank of Japan won’t be overly concerned as this will be mostly driven by one-off factors. … Consumer Prices …
The Bank of Japan is showing no signs of shifting to a more dovish stance, despite the impending sales tax hike and moves towards easing by the Fed (and the ECB). As long as there is no sharp downturn after the tax hike in October, it will keep key policy …
20th June 2019
The wider trade deficit in May was a result of a sharp fall in exports and a slight fall in imports. Although export volumes are unlikely to be as weak as they were in the last quarter, a likely rebound in import volumes means that net trade should turn …
19th June 2019
A modest drop in home sales recently is a reassuring sign that the October sales tax hike will cause less disruption to the economy than previous tax increases did. Contracts on new property purchases had to be signed by 31st March for the current tax …
17th June 2019
PM Abe has presided over a sharp increase in employment since he returned to power in 2012. But productivity growth has been very weak, red tape remains prevalent and there are still too few foreign firms operating in the country. Unfortunately, we don’t …
14th June 2019
A looming slowdown in GDP growth and the prospect of rate cuts by the US Federal Reserve has prompted speculation that the BoJ will have to ease policy by the end of this year. However, the Bank remains concerned about the impact of low interest rates on …
12th June 2019
While machinery orders rose for the third straight month in April, we still expect business investment growth to slow this year as rising uncertainty over the economic outlook takes its toll. … Machinery Orders …
While it hopes to secure its own trade deal with the US before long, Japan risks getting caught in the crossfire of other US trade disputes. The prospect of a 25% tariff on all goods imported from Mexico to the US by October is a potentially significant …
7th June 2019
Although wage growth recovered in April, sampling distortions mean that it remains much weaker than what is implied by the tightness of labour market. But even once those distortions abate, a slackening labour market should keep a lid on wage growth in …
Some commentators have proposed that Japan should raise public spending to boost inflation, which would allow the Bank of Japan to raise interest rates. But given that the economy is operating at full capacity, the required increase in the budget deficit …
31st May 2019
The rebound in industrial output in April coupled with upbeat forecasts for May suggests that the manufacturing sector will return to growth in Q2. However, we still expect the labour market to slacken before long which suggests that the slowdown in …
While there is growing anecdotal evidence of some Japanese firms shifting production of US-bound goods from China to Southeast Asia, the large size of China’s domestic market means that China will remain an important production base. What's more, …
30th May 2019
The Q1 GDP figures overstated the health of the economy and we expect a renewed slowdown in the second quarter. But with domestic demand still rising at a healthy pace and the unemployment rate at the lowest in a generation, we suspect that the government …
24th May 2019
The surge in April’s headline inflation was accompanied by an acceleration in underlying inflation, which rose to its highest in almost three years. However, we suspect that underlying inflation will moderate and turn negative before long. … Consumer …
Despite the rise in March’s core machinery orders, investment in machinery and transport equipment is likely to have fallen in the first quarter. Early indicators also suggest that orders will remain weak over the coming months. … Machinery Orders …
22nd May 2019
While the trade deficit narrowed in April as exports have started to rebound, we think that the slump in import volumes in the first quarter will reverse before long. The upshot is that we expect net trade to turn into a drag on GDP growth in the second …
The unexpected 0.5% q/q rise in GDP and the 3% q/q plunge in total hours worked in the first quarter meant that productivity rose at its fastest pace in nearly four years. That makes sense because firms have been responding to capacity shortages and the …
21st May 2019
The surprising resilience of the economy at the start of the year means that GDP growth will be stronger this year than we had anticipated. It also suggests that the government will press ahead with the sales tax hike scheduled for 1st October. … GDP (Q1 …
20th May 2019
The government downgraded its assessment of economic conditions this week, prompting renewed speculation that the sales tax hike scheduled for 1 st October will be delayed yet again. However, with the survey data picking up again recently we suspect that …
17th May 2019
The impact of the renewed escalation of trade tensions between the US and China on Japan’s economy should be small even allowing for second-round effects on financial markets and confidence. A bigger threat is looming US tariffs on US car imports, which …
15th May 2019
If the next downturn is a mild, cyclical one we would expect the Bank of Japan to cut its short-term policy rate but leave its 10-year yield target unchanged. Fiscal stimulus would probably have to do the heavy lifting. In the event of a severe downturn, …
14th May 2019
The government admitted in January that sampling errors had resulted in wage growth being overstated in 2018. Unfortunately, the government has added to concerns over the accuracy of the wage data by making a separate change to the sampling methodology …
10th May 2019
The recent slump in wage growth reflects sampling changes as well as falling working hours. Given the current level of the unemployment rate, wages should be growing by around 1% and we expect a rebound in working hours to provide a tailwind over coming …
The reduction in the number of working days will reduce the annual growth rate of industrial production and exports but it will have no impact on the more closely-watched monthly changes. Nor will it affect GDP growth. The upshot is that policymakers will …
3rd May 2019
The LDP’s recent by-election defeats have generated speculation that the party may do poorly in July’s Upper House election and that the government may delay October’s sales tax hike yet again. But with the opposition’s prospects even poorer than ahead of …
26th April 2019
March’s activity data were weak and suggests that the contraction in Q1 GDP will be sharper than what we initially expected. And although the jump in the unemployment rate in March merely reversed February’s fall, we still think that the labour market …
The Bank of Japan made it very clear that it will keep policy settings loose for at least another year. And while we expect GDP growth and inflation to disappoint, we think that concerns about the impact of loose policy on financial stability will prevent …
25th April 2019
Private consumption surged ahead of the last two sales tax hikes as households brought forward spending but collapsed as soon as the tax had been raised. The data thus far suggest that consumers have yet to bring forward any spending ahead of the hike …
22nd April 2019
Inflation will probably turn negative yet again over coming months once we strip out of the impact of October’s sales tax hike. However, that partly reflects one-off price cuts that have been flagged well in advance. As such, we think the Bank of Japan …
18th April 2019
While the tone of the incoming data has been a little more positive since the March meeting, we still expect GDP growth to slow sharply this year. However, many on the Board remain concerned about the side effects of loose policy so further cuts in …
17th April 2019
The renewed trade deficit in March is not an area of immediate concern and we think that net trade may have actually boosted GDP growth in Q1. The bigger picture, however, remains unchanged – the outlook for external demand remains weak. … External Trade …
The introduction of free childcare for children aged three to five and for those below three years of age from low-income families should encourage even more women to join the workforce. Improved access to childcare could boost the female participation …
12th April 2019
Although core machinery orders rebounded in February, they are still likely to have fallen across the quarter. That suggests that business investment fell in Q1 and we think that it will remain weak this year. … Machinery Orders …
10th April 2019
The Bank of Japan’s claims that capacity shortages were the most pronounced since the early 1990s last year jar with the slowdown in economic activity and the fact that underlying inflation remains subdued. Even if the Bank is right, we expect growth to …
5th April 2019
The recent slump in wage growth is hard to square with the tightness of the labour market. That said, we think that the unemployment rate will start to rise again soon. That means wage growth is likely to stay under 1% which makes it nearly impossible to …
Japan’s economy has made a poor start to the year and, with the sales tax hike looming and export demand likely to be subdued, GDP growth will remain well below trend both this year and next. The labour market may therefore soon start to slacken again, …
1st April 2019
The Q1 Tankan revealed a sharp deterioration in activity at the start of the year. That suggests that the easing in capacity and staff shortages that started in manufacturing should soon spread to other sectors. … Tankan …
The sharp fall in JGB yields in recent weeks means that the Bank of Japan will probably lower its JGB purchases more quickly than we had anticipated. In fact, there’s a chance that the Bank may soon have to sell rather than buy JGBs in order to defend its …
29th March 2019
February’s activity data don’t alter our view that GDP contracted in the first quarter and won’t rise at all this year. And while the labour market remains exceptionally tight, the weakness in activity should result in rising unemployment before long. … …
Japan’s economy on some measures is weaker now than it was on the two previous occasions when Prime Minister Abe announced a delay to the planned sales tax hike, so it is perhaps not surprising that some influential voices were calling this week for …
22nd March 2019
Inflation remained flat in February and will probably start to slow over the coming months due to falling energy prices and moderating underlying price pressures. … Consumer Prices …
Major electronics firms and carmakers offered workers smaller base pay increases during this year’s spring wage negotiations than they did last year. (See Chart.) Only a small share of firms participate in the so- called shunto, and the results of the …
19th March 2019
The rebound in February’s exports was probably distorted by shifts in the timing of Chinese New Year. What’s more, the PMIs from Japan’s main trading partners suggest that exports will remain subdued in the coming months. … External Trade …
18th March 2019
The wisdom of the Bank of Japan sticking with an inflation target it can’t reach is being questioned again, including by Japan’s finance minister this week. But all alternatives would be worse. And this would, in any case, be an inopportune time to signal …
15th March 2019
Just over two decades after it first cut rates to zero, the Bank of Japan today left its policy settings unchanged and reiterated that the ultra-loose stance will be maintained for the foreseeable future. While Governor Kuroda sounded relaxed about the …
The decline in machinery orders in January is another signal that business investment will be weak in Q1, and possibly tip GDP into another contraction. … Machinery Orders …
13th March 2019
Upcoming regulatory changes reported this week should help support an increase in bank profits and thereby neutralise one of the key arguments for why the Bank of Japan should reverse its ultra-loose policy stance. … Bank mergers to lift profits, trade …
8th March 2019
While there are mounting signs that a global downturn is underway, concerns about the impact of low policy rates on the health of the banking sector will probably prevent the BoJ from cutting its policy rates any further. Instead, the Bank’s response will …
5th March 2019
The LDP’s proposal to do away with term limits for the Prime Minister will make little difference to the outlook for Japan’s economy. Meanwhile, we aren’t overly worried about the continued surge in condominium prices in the large metropolitan areas as …
1st March 2019
