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The contraction in Q3 GDP that was confirmed this week is likely to be followed by a rebound over coming quarters. But the bigger picture is that growth momentum has weakened since last year and, while spending to beat the coming tax hike will flatter the …
16th November 2018
The contraction in Japan’s economy in Q3 should prove short-lived. But the income data released alongside the GDP figures provide a more lasting reason for concern. The Bank of Japan had been able to point to signs of accelerating wage growth as evidence …
15th November 2018
The slump in output in the third quarter probably reflects a number of natural disasters and the economy almost certainly returned to growth in Q4. Indeed, the near-term outlook is positive as consumers bring forward spending ahead of next year’s sales …
14th November 2018
The past week’s data cast a shadow over some of the few remaining bright spots in Q3. Next week’s GDP release is very likely to show that Japan’s economy contracted for a second time this year. Meanwhile, Governor Kuroda’s message about forward guidance …
9th November 2018
The acceleration in wage growth in September was driven by volatile bonus payments whereas growth in base pay slowed rather sharply. The final reading may yet show stronger growth in regular earnings but the key point is that wages would have to rise much …
7th November 2018
The steep cut to mobile phone charges announced by Japan’s largest wireless operator last week means that consumer price inflation may average only 1.0% next year rather than the 1.2% we had been forecasting. While the Bank of Japan will argue correctly …
6th November 2018
The new types of work visas Japan’s government plans to introduce in April will probably result in an even greater inflow of foreign workers over the coming years. That’s a step in the right direction but immigration won’t offset the rapid decline in the …
2nd November 2018
The Bank of Japan seems to be getting a little more worried about the impact of prolonged easing on financial stability. However, the looming sales tax hike and the downgrade to the BoJ’s inflation forecasts underline that policy tightening remains a long …
31st October 2018
The slump in industrial production in September means that Q3 GDP may have fallen by more than we had anticipated. But the recent weakness probably reflects the impact of natural disasters and a return to growth in Q4 is likely. … Industrial Production …
The unemployment rate is the lowest it has been in a generation and we think it will fall further over the coming year. But wage growth probably won’t reach the rates required to meet the BoJ’s 2% inflation target. … Labour Market …
30th October 2018
The drop in retail sales in September suggests that consumer spending fell yet again in Q3. That’s one reason why we expect GDP to contract in Q3. … Retail Sales …
29th October 2018
We still think that the solution to the continued fall in regional banks’ capital ratios is a reduction in the number of lenders rather than an increase in the BoJ’s 10-year yield target. Japan’s government seems to agree. Meanwhile, Prime Minister Abe’s …
26th October 2018
The jump in fresh food prices that lifted inflation in the Tokyo region to a ten-year high in October won’t be sustained. And with underlying inflation moderating yet again, the Bank of Japan’s 2% inflation target remains out of reach. … Tokyo CPI …
The Bank of Japan will probably lower its growth and inflation forecasts further at next week’s policy meeting. And it should reiterate its pledge to keep interest rates at current extremely low levels for an extended period. … Sales tax hike is the nail …
24th October 2018
The pick-up in the manufacturing PMI in October, from 52.5 to 53.1, suggests that the likely slowdown in GDP growth in Q3 was just a blip. … Flash Manufacturing PMI …
US insistence that provisions against currency manipulation be a part of any future trade deal with Japan has raised suggestions this week that Japanese policymakers, particularly those at the Bank of Japan, could find their hands tied in future. We …
19th October 2018
While underlying inflation didn’t rise any further in September, we think it will strengthen as firms pass on higher labour costs and domestic demand strengthens ahead of the tax hike. However, inflation won’t reach the BoJ’s 2% inflation target for the …
Net exports probably remained a drag on GDP growth in the third quarter. It now looks likely that economic activity came to a standstill in Q3. … External Trade …
18th October 2018
Japan’s economy was always likely to slow in the third quarter after the surge of output it generated in the second. But the latest data have still been rather disappointing. While investment remains strong, industrial output may have contracted, consumer …
15th October 2018
The government has indicated that it will be more lenient in applying antimonopoly legislation when assessing regional bank mergers. That should pave the way for a further consolidation of unprofitable small lenders and assuage concerns about the impact …
12th October 2018
The continued surge in machinery orders in August suggests that business investment may have been stronger in Q3 than we had anticipated. Even so, we still expect a marked slowdown in Q3 GDP growth. … Machinery Orders …
10th October 2018
Domestic demand will pick up speed ahead of next year’s sales tax hike, extending one of Japan’s strongest runs of growth since the 1980s, and price pressures will strengthen. But weaker domestic demand after the tax hike means that GDP growth will slow …
9th October 2018
Japan’s labour market is as strong as most of today’s workers will ever have known, which makes the persistent weakness of consumption all the more puzzling. Spending remains flat according to data from the Bank of Japan today and survey evidence suggests …
5th October 2018
The strongest rise in regular earnings since 1997 should be followed by even stronger gains in coming months as the labour market tightens further. … Labour Cash Earnings & Household Spending …
The deterioration in business conditions in the Q3 Tankan supports our view that GDP growth slowed last quarter. That said, firms remain optimistic about the outlook for capital spending and the survey suggests that price pressures will continue to …
1st October 2018
Japan’s government this week caved to US pressure to start discussions on a bilateral trade deal. But it appears to have won some valuable concessions in return. Meanwhile, we learnt more about what the Bank of Japan was thinking with its recent …
28th September 2018
Today’s activity data showed a rebound in August but that won’t prevent a slowdown in GDP growth in Q3. The labour market remains tight and price pressures in the capital have strengthened further. … Labour Market & Activity (Aug.) & Tokyo CPI …
Recent comments by Prime Minister Abe suggest that he is no longer obsessed with overcoming deflation and would like the Bank of Japan to focus more on the financial stability part of its mandate. However, credit growth remains strong, price pressures …
21st September 2018
The continued increase in the manufacturing PMI in September suggests that industrial activity should soon start to strengthen again. … Flash Manufacturing PMI …
Underlying inflation climbed to a four-month high in August and should pick up further ahead of next year’s sales tax hike. But price pressures will weaken once the tax has been raised and the BoJ’s 2% target remains elusive. … Consumer Prices …
Mr Abe will remain Prime Minister for another three years. That means fiscal policy will probably be tightened further, monetary policy will remain loose and policymakers may take some further steps to address the country’s demographic headwinds. … What …
20th September 2018
The Bank of Japan today reiterated its pledge to keep rates low for a prolonged period. With the sales tax hike looming and inflation set to remain below target for longer, we think that the Bank will keep rates unchanged beyond 2020. … Mounting risks …
19th September 2018
Import volumes seem to have outpaced export volumes yet again in August which supports our view that net trade remained a drag on Q3 GDP growth. … External Trade …
Recent comments by President Trump suggest that he may target Japan next in his efforts to reduce the US trade deficit. Trump may want Japan to increase pressure on China to end unfair trading practices. But that would require more than just rhetoric by …
14th September 2018
Mounting downside risks to economic activity mean that the Bank of Japan will have little reason in the foreseeable future to deviate from its pledge to keep interest rates extremely low for an extended period. Our long-held view that the Bank will keep …
13th September 2018
Even though machinery orders jumped in July, the recent fall in capital goods shipments suggests that a slowdown in business investment in the third quarter will be hard to avoid. … Machinery Orders …
Summer bonuses rose the most since 1991 this year. That is partly a reflection of the surge in corporate profits in recent years. But workers are earning more than their fair share of the pie. Labour income is growing much faster than output and the wage …
11th September 2018
Revised data show that growth in Q2 was stronger than initially reported. But the available data suggest that activity slowed in Q3 and we reiterate our forecast that growth will be just 1% this year. … GDP (Q2 …
10th September 2018
Prime Minister Abe is set to remain in power for another three years following the LDP leadership elections. One of the few substantive reform proposals he has put forward is an increase in the retirement age beyond the current 65. While this would reduce …
7th September 2018
We wouldn’t read too much into the slowdown in wage growth in July as it was driven by volatile bonus payments. Base pay continues to grow at a healthy pace. We expect wage growth to strengthen a bit further but it won’t be fast enough to generate 2% …
Japan’s government has long argued that the sales tax hike scheduled for next year is needed to improve the fiscal position. With the economy performing extremely well at the moment, Mr Abe has no reason to reconsider those plans. But economic conditions …
5th September 2018
The increase in the volume of the Bank of Japan’s bond auctions merely offsets a reduction in their frequency and won’t alter the overall pace of purchases much. The bigger point is that those auctions don’t tell us anything about the outlook for monetary …
Today’s shift in the Bank of Japan’s bond purchases shouldn’t be interpreted as a signal that the 10-year target will be raised anytime soon. Note added post-publication: In this Update, we suggest that the increase in BoJ purchases “looks rather odd”. We …
4th September 2018
Today’s capital spending data suggest that business investment was much stronger last quarter than initially reported. This points to an upward revision to GDP growth in next week’s second estimate. … Capital Spending …
3rd September 2018
This week’s activity data for July were rather weak. The 0.1% m/m rise in retail sales values wasn’t too bad given that sales had jumped by 1.4% m/m in June. But consumer goods prices rose by 0.7% m/m in July so sales volumes fell. If sales volumes remain …
31st August 2018
The third consecutive decline in industrial production in July suggests that growth will slow in Q3. Meanwhile, the tight labour market is starting to boost price pressures. … Labour Market & Ind. Prod. (Jul.) & Tokyo CPI …
While retail sales values edged up in July, sales volumes declined. The upshot is that private consumption started Q3 on a soft note. … Retail Sales …
30th August 2018
Inflation has been held back by plunging mobile phone costs and competition from online retailers. The main factor, however, are deeply engrained deflationary expectations among households and firms. While the Bank of Japan has had little success in …
24th August 2018
Consumer price gains remain driven by volatile fresh food and energy inflation while underlying inflation remains subdued. Price pressures should strengthen ahead of next year’s sales tax hike but inflation is set to remain well below the BoJ’s 2% …
Even though the manufacturing PMI still points to robust gains in industrial production, there are signs that the prospect of a global trade war is weighing on external demand. … Flash Manufacturing PMI …
23rd August 2018
