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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
The unemployment rate edged up in January and with GDP growth set to remain soft, we think it will creep higher next year. … Labour Market (Jan.) & Capital Spending …
The sharp falls in industrial production and retail sales in January suggest that the economy slowed sharply at the start of 2019. And the deterioration in business confidence means that a rapid rebound is not on the cards. … Industrial Production & …
28th February 2019
The export climate index fell to a three-year low in January and suggests that exports will barely grow at all this year. The monthly trade data have been even more downbeat as they showed export volumes falling at an annual rate of nearly 6% over the …
26th February 2019
The survey evidence suggests that the economy is losing momentum and we’ve lowered our GDP growth forecast for 2019 to 0.5%. If the economy records yet another quarter of falling output, we suspect PM Abe may delay the sales tax scheduled for October yet …
22nd February 2019
The drag from slumping fresh food inflation will subside soon but headline inflation will still hover around 0.5% over the coming months. … Consumer Prices …
The continued sharp fall in the manufacturing PMI in February adds to the evidence that Japan’s economy is losing steam rapidly and suggests that GDP growth will remain weak for now. … Flash Manufacturing PMI …
21st February 2019
The renewed widening of the trade deficit in January suggests that net trade remained a drag on GDP growth in the first quarter and we think that export growth will remain sluggish this year. … External Trade …
20th February 2019
Corporate investment has been a key driver of domestic demand in Japan recently, underpinned by healthy profits and the growing capacity constraints that resulted from a prolonged period of above-trend growth. But recent evidence suggests that firms are …
15th February 2019
Japan’s economy returned to growth in Q4 but its performance over the past year has been poor. Domestic demand will get a lift ahead of October’s sales tax hike but that sugar-high won’t be sustained. … GDP …
14th February 2019
This week’s “shunto” spring wage negotiations got underway against an inauspicious backdrop, with corrected official data showing that real wages didn’t rise at all last year. Next week, Japan’s zero interest rate policy, which was conceived as a last …
8th February 2019
Faced with a severe downturn, developed economies would exhaust their conventional monetary policy tools quickly. At first sight, Japan’s experience suggests that even the bold use of unconventional tools might not work. However, there are reasons why …
5th February 2019
The final few releases of December spending and output data have provided reassurance that Japan’s economy returned to growth in Q4. But the early signs for the current quarter are not at all encouraging. Meanwhile, the number of foreign workers continues …
1st February 2019
The sharp fall in December’s labour force and employment followed unusually strong gains in previous months and should not be a cause for concern. However, the unemployment rate may be close to a floor, so wage growth probably won’t rise further. … Labour …
The jump in industrial production in the fourth quarter points to a strong rebound in GDP. But the worsening of the business surveys suggests that a renewed slowdown at the start of this year is likely. … Industrial Production …
31st January 2019
The strong rise in December’s retail sales values suggests that private consumption growth in the fourth quarter could slightly exceed our expectations. And as consumers bring forward spending ahead of October’s sales tax hike, consumption should …
30th January 2019
A shocking set of export figures this week may have been worsened by specific troubles in the tech sector. But a deterioration in the global environment is likely to be an increasing headwind for the whole export sector this year. … Exports slump as tech …
25th January 2019
Combined with the recent fall in Reuters’ manufacturing Tankan, the slump in the manufacturing PMI in January suggests that the growth outlook for Japan has deteriorated. While we still expect domestic demand to pick up ahead of the sales tax hike, …
24th January 2019
Economic growth is set to slow after October’s sales tax hike while inflation will remain well below the Bank of Japan’s 2% target. But with high hurdles to additional policy easing, we think that the Bank will keep policy settings unchanged both this …
23rd January 2019
The slump in export volumes in December probably overstated the weakness in external demand. Even so, we expect export growth to slow this year. … External Trade …
Japanese households are more positive about current economic conditions than they have been for many years but they report still being highly price sensitive, and their worries about the outlook have spiked recently. All of this helps explain why, …
18th January 2019
The sharp fall in inflation in December in part reflects temporary factors that will reverse soon. But the bigger picture is that underlying price pressures will remain weak for the foreseeable future. … Consumer Prices …
