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Even if it escalates, the trade dispute between the US and China shouldn’t do significant damage to Japan’s economy. US tariffs on Japanese vehicles would be a greater concern, while a blanket US tariff on all Japanese imports would push the economy into …
21st August 2018
A former BoJ executive suggested that the Bank of Japan may tolerate 10-year yields rising to 0.4% even while keeping its official target at zero. This would lift trading income, increase returns on bond holdings and might also encourage banks to lift …
17th August 2018
Mr Abe will almost certainly win the LDP’s leadership elections next month, allowing him to stay Prime Minister for another three years. While fiscal policy will probably be tightened a little further during his upcoming third term, the impact on economic …
16th August 2018
The deterioration in the trade balance in July reflects a combination of rising import volumes and higher energy prices. We expect crude oil prices to fall over the coming months so the trade balance should become positive again. … External Trade …
Abolishing cash would allow the Bank of Japan to cut interest rates deeper into negative territory. But in a society where cash transactions are still widespread, such a move would prove deeply unpopular. And if policy rates become too negative, consumers …
14th August 2018
The Bank of Japan’s decision to allow JGB yields to deviate by 0.2 percentage points rather than 0.1 percentage points from its 0% target suggests that long-term bond yields will settle at a slightly higher level than before. The market has yet to test …
13th August 2018
Media reports suggest that the Bank of Japan was close to hiking rates twice this year. But the decision to allow ten-year yields to rise a bit further above the 0% target placated the hawks on the Board. And the introduction of forward guidance suggests …
10th August 2018
While GDP started expanding again in the second quarter, growth isn’t as vigorous as last year. With the economy running into capacity constraints, we think that activity will remain sluggish for now. … GDP (Q2 …
Even though machinery orders fell further in June, they still rose last quarter and we’ve pencilled in an increase in non-residential investment in tomorrow’s GDP release. … Machinery Orders …
9th August 2018
The surge in wage growth in June was mostly driven by stronger bonus payments whereas base pay didn’t pick up any further. Meanwhile, the rise in household spending in June adds to the evidence that consumer spending bounced back last quarter. … Labour …
7th August 2018
The outlines of the Bank of Japan’s new policy framework have become clearer during the week: a more flexible approach to intervention, a focus on preventing sharp moves, but also a tolerance of higher yields for the target 10-year JGB than before. In the …
3rd August 2018
The Bank of Japan made some technical adjustments to its policy framework today. But its key message, which it emphasised with the introduction of explicit forward guidance, was that the main policy rates will remain at very low levels for the foreseeable …
31st July 2018
Even though job growth slowed in June, the unemployment rate remained very low. Meanwhile, industrial production rebounded last quarter which suggests that the economy returned to growth. … Labour Market & Industrial Production …
The rebound in retail sales in June suggests that consumer spending picked up again in Q2 which supports our view that the economy returned to growth last quarter. … Retail Sales …
30th July 2018
Bond market participants appear convinced that something substantive will come from next week’s Bank of Japan meeting. But if the Bank did anything that was perceived as backing away from the commitment to keep policy ultra-loose it would be shooting …
27th July 2018
There was a broad-based rise in price pressures in the capital region last month. But while the rise in energy inflation won’t be sustained, the recent pick-up in underlying inflation has further to run. … Tokyo CPI …
Leaks from the Bank of Japan ahead of next week’s Policy Board meeting have prompted speculation that the Board will adjust its policy framework. Any changes would be intended to address the strains on financial institutions caused by ultra-loose policy, …
26th July 2018
The manufacturing PMI fell back in July which suggests that the threat of a global trade war may be weighing on business confidence. At the same time, price pressures have continued to intensify. … Flash Manufacturing PMI …
24th July 2018
The BoJ has been able to drastically slow the pace of its acquisition of Japanese Government Bonds since it adopted a 0% yield target, which should quells doubts about the policy’s long-run viability. And while ultra-loose policy creates some challenges …
23rd July 2018
The trade war between China and the US will cause some collateral damage but the biggest potential threat to Japan’s economy is a US tariff on Japanese cars. For now though, our base case is that the tariff won’t be as high as Trump had threatened and …
20th July 2018
Energy inflation jumped in June. But if we strip out energy and fresh food, consumer prices have fallen in recent months, leaving the BoJ’s 2% inflation target out of reach. … Consumer Prices …
Today’s trade data show a renewed plunge in imports in June and suggest that net trade continued to support GDP growth in the second quarter. … External Trade …
19th July 2018
The Bank of Japan’s admission that inflation won’t reach its 2% target anytime soon has generated speculation that the target will be lowered at the meeting later this month. By contrast, we believe that the target is here to stay. … Will the BoJ lower …
17th July 2018
Early signs are that this week’s floods in western Japan, for all their terrible human cost, have had only a small economic impact, though the affected regions are manufacturing centres. Meanwhile, the area around Tokyo has been anointed the most …
13th July 2018
The contraction in output in the first quarter was just a blip. The available activity data suggest that the economy returned to growth in the second quarter. But growth won’t be as strong this year as it was last. Unemployment is about as low as it is …
12th July 2018
We expect GDP growth to be broadly in line with trend both this year and next. The labour market will remain very tight and wage growth may strengthen further. But sluggish demand after next year’s tax hike will keep 2% inflation out of reach. The Bank of …
11th July 2018
Even though machinery orders dropped in May, their Q2 average is well above the Q1 average and suggests that investment spending picked up again last quarter. … Machinery Orders …
BoJ Board member Harada this week refuted criticism that the Bank’s prolonged monetary easing poses a major threat to financial stability. We share his view that those concerns are overdone, which is one reason why we expect policymakers to keep policy …
6th July 2018
The acceleration in base pay in May is another sign that the tight labour market is boosting cost pressures. But we think that wages would still have to rise much faster to generate 2% inflation. … Labour Cash Earnings & Household Spending …
The recent plunge in Japan’s jobless rate suggests that wage growth will pick up faster than we had been anticipating. But we suspect that unemployment is now close to a floor so wage growth may never reach the rates necessary to meet the BoJ’s 2% …
3rd July 2018
This report is only available as a PDF. Click to download. … Tankan (Q2) …
2nd July 2018
Japan has looked to be at full employment for some time but the latest releases have called that assumption into question and raised the possibility that wage growth – and the Bank of Japan’s hopes of hitting its inflation target – might rise. Meanwhile, …
29th June 2018
While industrial output fell slightly in May, the economy should have returned to growth in the second quarter. Meanwhile, the labour market continues to tighten and there are signs that this is now boosting price pressures. … Labour Market & Ind. Prod. …
Despite the fall in retail sales in May, consumer spending should still return to growth in the current quarter. … Retail Sales (May) …
28th June 2018
Forecasting shifts in productivity is notoriously hard but past experience suggests that the recent slowdown in productivity growth in Japan should reverse over the coming decade. Nonetheless, with the drag from a shrinking working age population …
27th June 2018
While Japan has close economic ties to both the US and China, it shouldn’t be too badly affected if the trade dispute between them heats up. Perhaps the main concern is that a trade war would cause the yen to strengthen as a safe haven. But the currency’s …
22nd June 2018
The manufacturing PMI was little changed in June and still points to robust gains in industrial output. And the recent surge in crude oil prices is boosting price pressures. … Flash Manufacturing PMI …
While a pick-up in energy and fresh food prices lifted inflation in May, underlying inflation weakened further and remains far below the Bank of Japan’s 2% target. … Consumer Prices …
Despite rapid growth, sales of second-hand goods remain too low to constitute a major threat to retailers. Their rising popularity reflects the increased convenience of electronic platforms rather than concerns over falling incomes and higher cost …
19th June 2018
Even though today’s trade data show a jump in imports in May, we still think that net trade supported GDP growth in the current quarter. … External Trade …
18th June 2018
The Bank of Japan has recently been expressing greater concern about the impact of ultra-loose monetary policy on financial stability. But Governor Kuroda today insisted that the key focus of policy must remain on lifting inflation expectations and …
15th June 2018
Corporate profits have more than doubled since Prime Minister Abe returned to power. We think that this reflects a reduction in cross-shareholdings since the late 1990s and improvements in corporate governance. The prolonged rise in profits suggests that …
14th June 2018
Headline inflation has been falling recently as the impact of the short-lived spike in food prices over the winter has reversed. Energy inflation has continued to slow as utility bills are rising less rapidly and the recent surge in crude oil prices has …
12th June 2018
Concerns about financial stability seem to have become more widespread on the Policy Board. But inflation remains far below the 2% target and the prospect of a renewed slowdown in domestic demand after next year’s sales tax hike will prevent policymakers …
11th June 2018
The surge in machinery orders in April is yet another sign that the drop in Q1 GDP was just a blip. The bigger picture is that firms are facing severe capacity constraints so investment spending should remain a key growth driver this year. … Machinery …
The slump in the share of young women that are married combined with the delay when women have their first child suggest that the fertility rate may at best rise from the current 1.4 to around 1.5. Even so, the working-age population would still fall by …
8th June 2018
Revised data show that Japan’s economy expanded a little faster in recent quarters than initially reported. But the economy is running into capacity constraints and we expect growth to slow this year. … GDP (Q1 …
The slowdown in wage growth in April was driven by volatile bonus payments, whereas base pay kept growing at the strongest pace in two decades. But wages would still have to grow much faster to meet the Bank of Japan’s 2% inflation target. … Labour Cash …
6th June 2018
While household spending was weak in April, the jump in retail sales suggests that private consumption returned to growth this quarter. … Household Spending …
5th June 2018
The Bank of Japan seems to be getting more concerned about the impact of low policy rates on financial stability. However, the financial system is neither unwilling to provide credit nor is credit growing at an unsustainable pace. And with inflation …
1st June 2018
