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On past form, capacity shortages alone will never be enough to generate 2% inflation in Japan. The prerequisite for faster price gains is that inflation expectations among households and firms also rise substantially. Unfortunately, the Bank of Japan’s …
23rd February 2018
Underlying inflation has picked up again but we think this mostly reflects the lagged pass-through from previous exchange rate weakness. With producer prices of consumer goods now moderating, underlying inflation is set to remain well below the Bank of …
While the manufacturing PMI weakened in February it remains near the highest it has been since 2014’s sales tax hike and consistent with strong gains in industrial output. Meanwhile, the survey suggests that price pressures aren’t strengthening any …
21st February 2018
Japan’s economy recorded an eighth consecutive quarter of growth in Q4, the longest uninterrupted run of expansion since the late 1980s. Unemployment is very low, inflation has started to pick up, condominium prices have soared and credit growth is the …
20th February 2018
Trade values were distorted in January by seasonal swings ahead of the Lunar New Year. The bigger picture is that external demand remains robust. … External Trade …
19th February 2018
While machinery orders fell sharply in December, they were broadly unchanged in the fourth quarter as a whole. However, we already know from yesterday’s release of the GDP data that business investment continued to expand in Q4 and the figures released …
15th February 2018
If the Bank of Japan were to reverse course on monetary loosening in the near future, it would more likely be a response to worries about financial stability than high inflation. The recent deterioration in banks’ capital ratios therefore should be …
14th February 2018
GDP growth slowed sharply last quarter and we think that the economy won’t expand as strongly this year as it did in 2017. … GDP (Q4 …
Bank lending has continued to slow and Japanese banks are no longer gaining market share in the cross-border lending market. However, one reason is that non-financial firms are increasingly turning to the bond market to raise funds. … Monetary Indicators …
13th February 2018
Governor Kuroda looks likely to be reappointed as Bank of Japan Governor when his current term ends in April. It is still unclear who his two deputies will be, but the main candidates are mostly in favour of continued aggressive monetary easing. As such, …
12th February 2018
The recent sell-off on the stock market would have to continue for much longer before it started to have a major effect on consumer spending in Japan. And with the yen barely changed, the impact on the wider economy of this week’s market moves should be …
9th February 2018
The yen has strengthened in recent months even though investors are now anticipating a more aggressive pace of tightening by the US Fed. While we expect US long-term interest rates to end this year a bit higher than they are now, we no longer expect this …
8th February 2018
The slump in the Economy Watchers Survey in January probably reflects cold winter weather and we wouldn’t read too much into it. … Economy Watchers Survey …
The slowdown in wage growth in December was driven by bonus payments and overtime pay whereas regular pay rebounded. The big picture is that wage growth remains sluggish. … Labour Cash Earnings …
7th February 2018
The Bank of Japan’s offer to buy an unlimited amount of bonds today for the first time since July has dampened expectations that policymakers are about to withdraw stimulus. As a result, the yen has now started to weaken again. We expect it to fall …
2nd February 2018
With our GDP tracker suggesting that activity continued to expand at a rapid clip last quarter, risks to our forecast of a 1.2% rise in GDP this year are skewed to the upside. However, the economy is now running into capacity constraints and we still …
Household sentiment remained strong at the start of 2018 and suggests that the expansion in consumer spending has further to run. … Consumer Confidence …
31st January 2018
Industrial production recorded another marked rise last quarter which suggests that GDP growth remained strong. However, the outlook for the coming months is less rosy. … Industrial Production …
While the jobless rate edged up in December, the continued rise in job vacancies suggest it will fall to fresh lows before long. Meanwhile, consumer spending should have rebounded last quarter even though the December data on retail sales and household …
30th January 2018
One widely-overlooked factor driving Japan’s growth in recent years has been a surge in the number of foreign workers. This appears to be continuing, as employers face labour shortages and recent legal changes have made it easier for foreigners to work in …
29th January 2018
Some commentators have been arguing that the Bank of Japan should be raising interest rates now to support household incomes. However, it isn’t clear whether this would boost household spending, while higher interest rates certainly would present a …
26th January 2018
Inflation excluding fresh food remained close to 1% in December. But with wage growth still sluggish and the tailwind from higher energy prices set to fade, inflation won’t rise any further. … Consumer Prices …
The manufacturing PMI climbed to a four-year high in January and suggests that the economic expansion remained vigorous at the start of this year. … Flash Manufacturing PMI …
24th January 2018
While import volumes outpaced export volumes in December, we still think that net exports supported GDP growth last quarter. … External Trade …
For the first time since July 2014, the Bank of Japan didn’t lower its inflation forecasts any further. However, we believe that the Bank is too optimistic about the inflation outlook and we remain convinced that policy won’t be tightened anytime soon. … …
23rd January 2018
We expect the price of Brent crude oil to moderate from $70 per barrel to $55 by the end of 2018. But even if global oil prices remain close to current levels, inflation in Japan would only average 1% this year instead of our existing forecast of 0.7%. …
19th January 2018
Speculation that the Bank of Japan is about to increase its yield target has pushed the yen higher. However, we think that policy tightening remains a distant prospect and that the yen will weaken as this become clear. … Bank of Japan to keep policy loose …
18th January 2018
Inflation climbed to a fresh high in November and mounting capacity shortages suggest that price pressures will strengthen further. However, most of the recent increase has been driven by higher energy inflation. We expect crude oil prices to fall this …
17th January 2018
Machinery orders were the highest in almost a decade in November which suggests that the expansion in business investment continued last quarter. … Machinery Orders …
Bank lending has continued to slow. However, this doesn’t seem to reflect a tightening in bank lending attitudes, which remain very accommodative. What’s more, overall borrowing by the private sector is growing at the fastest pace since the early 1990s as …
15th January 2018
A reduction in the size of the BoJ’s JGB auction moved markets this week. This wasn’t policy tapering in an effort to reduce stimulus: the Bank now only buys what is needed to maintain the yield target and that amount has been falling for a while. Indeed, …
12th January 2018
The Economy Watchers Survey remained strong in December despite a small decline. The survey suggests that consumer spending and employment will continue growing at rates comparable to those seen over the past few months, while the manufacturing sector …
This week’s reduction in the Bank of Japan’s scheduled government bond purchases doesn’t signal that it is about to lift the yield target. The Bank purchases whatever is needed to maintain the target and the credibility of its commitment to the target has …
10th January 2018
Households remained in high spirits in December which suggests that Q3’s drop in consumer spending wasn’t repeated last quarter. … Consumer Confidence …
9th January 2018
Regular earnings probably rose at the fastest pace in two decades last year. Yet the pace of improvement remains woefully slow so the Bank of Japan’s 2% inflation target remains out of reach. … Labour Cash Earnings …
Perhaps the most remarkable achievement of Abenomics has been the continued increase in employment despite the contraction in the working age population. It is possible that Japan will be able to continue dodging its apparent demographic destiny but this …
8th January 2018
While the budget for the coming fiscal year foresees record spending, expenditure will only rise marginally and revenues may climb even faster. The upshot is that the government is set to proceed with fiscal tightening. While there is no pressing need to …
5th January 2018
Japan’s November activity data suggest that the economy recorded an eighth consecutive quarter ofgrowth in Q4. And with the labour market the tightest in at least two decades, underlying inflationcontinues to accelerate. … Price pressures strengthening …
2nd January 2018
Unless private sector surpluses fall, the planned increase in the sales tax in 2019 will result in weaker domestic demand. Incentives to increase investment spending or lift dividend payments would lower the corporate surplus. But Japanese firms already …
21st December 2017
A rising number of analysts believe that the BoJ will start tightening policy by the end of next year. But with inflation set to remain below its 2% target, we think that the Bank will keep policy loose for longer. … Weak price pressures will prevent BoJ …
The Bank of Japan has been warning that low policy rates could eventually prove contractionary if they depress banks’ profits and capital and reduce their willingness to lend. In reality though, capital ratios have risen in recent years, banks’ lending …
19th December 2017
Producer prices in Japan are rising at the fastest pace in years but we still expect consumer price inflation to remain broadly flat in coming months. … What to make of the surge in producer …
18th December 2017
Japan’s economy will expand the most this year since 2013. Yet the unemployment rate hasn’t fallen any further since the start of the year. This isn’t due to a surge in productivity that has reduced labour demand. In fact, productivity growth has been …
Export volumes continued to grow faster than import volumes last month which suggests that net trade continued to support growth in the current quarter. … External Trade …
We expect Japan’s GDP growth to slow next year as the economy is now operating above capacity. Price and wage pressures should strengthen somewhat but inflation will remain well below the Bank of Japan’s 2% target and monetary policy settings will …
15th December 2017
Today’s Tankan survey showed that business conditions didn’t improve much further this quarter which suggests that growth is now slowing. Nonetheless, capacity and staff shortages continue to intensify and price pressures are strengthening. … Tankan …
The manufacturing PMI was the highest in nearly four years in December as external demand continues to improve. However, price pressures are only strengthening slowly. … Flash Manufacturing PMI …
14th December 2017
With yields set to rise overseas and concerns that low policy rates may curtail lending likely to linger, speculation about policy tightening in Japan will not subside next year. However, we believe that subdued price pressures will force the Bank to keep …
13th December 2017
The rebound in machinery orders left them no higher than their Q3 average, but we’ve still pencilled in another rise in business investment this quarter. … Machinery Orders …
The jobless rate has been effectively flat since February despite continued strong growth in the economy. The economy is now close to full employment which suggests that wage growth will continue to strengthen. However, wages would have to rise much …
8th December 2017
