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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
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
