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While most of the recent pick-up in services inflation has been driven by just a handful of components, there’s been an upward shift in the distribution of price changes across the CPI basket. However, even if wage growth settles at higher levels than …
15th January 2024
Inflationary pressures moderating The economic data released this week all suggest that the case for tighter monetary policy is diminishing. For a start, the Tokyo CPI showed that inflation excluding fresh food fell to just 2.1% in December, within …
12th January 2024
This page has been updated with additional analysis since first publication. Virtuous cycle will get renewed boost this year Wage growth slowed sharply in November, driven by a plunge in bonus payments. While we expect the labour market to soften in the …
10th January 2024
This page has been updated with additional analysis since first publication. Inflation will jump again before long Inflation excluding fresh food came close to the Bank of Japan’s 2% target in December, but it will jump to nearly 3% from February and …
8th January 2024
The recent sharp fall in Japan’s ratio of public debt to GDP reflects one-off factors that won’t be sustained. While the influence of rising bond yields on the trajectory of the public finances will largely be offset by higher inflation and nominal GDP …
Manufacturers keep losing market share overseas Just as we predicted a few months ago, the outperformance of Japan’s stock market relative to US stocks has unwound as the yen has strengthened in recent weeks. (See Chart 1.) Chart 1: Yen/Dollar vs. …
5th January 2024
Industrial output has usually fallen rather sharply whenever firms were as pessimistic about the production outlook as they are now. That’s consistent with our view that GDP growth next year will be weaker than most anticipate. One thing that stood out …
28th December 2023
This page has been updated with additional analysis since first publication. GDP will rebound this quarter While the November activity data were a mixed bag, they strongly suggest that the economy dodged a recession. Taking industrial production first, …
This page has been updated with additional analysis since first publication Labour market should tread water from next year The unemployment rate stayed unchanged in November, following consecutive falls in the previous two months. We think it should …
26th December 2023
Policy rate hike in January now looking unlikely It came as a surprise to no one that the Bank of Japan left policy settings unchanged at this week’s meeting . Even so, yields on 10-year JGBs plunged by nearly 10bp since then, whereas 10-year Treasury …
22nd December 2023
This page has been updated with additional analysis since first publication. Inflation will only return to 2% by end-2024 The plunge in inflation in November was broad-based, but with the large drag from energy prices turning into a boost as energy …
21st December 2023
This page has been updated with additional analysis since first publication. Net trade will make a positive contribution to Q4 growth Even though the trade deficit narrowed in November, goods trade will probably be a drag on GDP growth this quarter. …
20th December 2023
The Bank of Japan left policy settings unchanged today as widely anticipated. And while Governor Ueda is sounding more confident that 2% inflation will be sustained, we now expect the Bank of Japan to end negative interest rates in March rather than in …
19th December 2023
Bank of Japan will end negative rates next month The Bank of Japan left policy settings unchanged today as widely anticipated but we still expect policymakers to end negative rates in January and to phase out Yield Curve Control later in 2024. The Bank’s …
Services sector running red-hot The strong Q4 Tankan released this week adds to the case for the Bank of Japan to abandon ultra-loose monetary policy. Of particular importance is that the Tankan shows mounting signs of overheating in the services …
15th December 2023
This page has been updated with additional analysis since first publication. Recession unlikely The composite PMI rebounded in December, which means we think there will unlikely be an incoming recession. The manufacturing PMI edged down further but the …
GDP growth should rebound modestly in the fourth quarter but we expect it will remain soft in 2024. Meanwhile, weak job openings data suggests the labour market should loosen slightly in the short term. However, there are mounting signs that a virtuous …
14th December 2023
This page has been updated with additional analysis since first publication. Domestic demand to remain weak The rise in “core” machinery orders in October is a sign that business investment may rebound in Q4 after falls in q/q terms in both Q2 and Q3. In …
This page has been updated with additional analysis since first publication. Strong Tankan suggests Japan won’t slip into recession The continued improvement in the Tankan suggests that the drop in Q3 GDP was just a blip, but we still expect GDP growth …
13th December 2023
Inflation is slowing and domestic demand is weakening However, price pressures are increasingly broad-based and wage growth is accelerating Bank’s leadership signalling that end of negative rates isn’t far off The Bank of Japan is increasingly keen to …
12th December 2023
Services inflation continues to accelerate The economic data released this week seem to vindicate the Bank of Japan’s caution when it comes to abandoning ultra-loose monetary policy. For a start, the timely Tokyo CPI showed that inflation slowed from …
8th December 2023
This page has been updated with additional analysis since first publication. Wage growth will stay strong Regular wage growth accelerated in October and we expect it to stay strong in the coming months as the virtuous cycle between prices and wages …
7th December 2023
This page has been updated with additional analysis since first publication. Inflation won’t reach BoJ’s target until end-2024 While inflation excluding fresh food in Tokyo wasn’t far above the Bank of Japan’s 2% target in November, we think it will take …
4th December 2023
Overview – Following a strong 2023, GDP growth is set to slow towards potential next year and the labour market will tread water for now. However, with the virtuous cycle between consumer prices and inflation set to gain momentum, we expect the Bank …
Consumption falling but labour market tightening The October activity data were a mixed bag. While industrial production rose by 1% m/m, firms’ forecasts for the next couple of months were weak and point to a stagnation in output across Q4 following …
1st December 2023
This page has been updated with additional analysis since first publication. Labour market not out of the woods yet The renewed tightening of the labour market in October probably reflects the lagged effects from the surge in output across the first half …
30th November 2023
In this Global Economics Update , we describe eight of the biggest risks to our economic forecasts for 2024. The unusual nature of this cycle and uncertainties surrounding the transmission of monetary policy mean that the biggest risks relate to central …
This page has been updated with additional analysis since first publication. Weakness in consumption raises risk of recession While industrial production kept rising in October, firms’ output forecasts for the coming months are weak and the slump in …
The recent period of high inflation in Japan has kick-started a virtuous cycle between wages and prices. If inflation expectations remain elevated and structural forces push up the neutral rate of interest over the coming years, monetary policy will …
27th November 2023
Disapproval rating highest since Suga resignation The Cabinet Office’s disapproval rating has surpassed 50% for the first time since Fumio Kishida became Prime Minister two years ago. Surely one reason is the 5% plunge in real household disposable …
24th November 2023
This page has been updated with additional analysis since first publication Decreases all across the board suggests another weak quarter The further slowdown in the composite PMI in November suggests that GDP growth remained sluggish this quarter. The …
This page has been updated with additional analysis since first publication. Inflation will only reach 2% by the end of next year The jump in headline inflation in October isn’t as bad as it looks as underlying inflation kept falling. Nonetheless, it …
23rd November 2023
Recent export resilience unlikely to last While the Q3 GDP release disappointed this week, there was some (qualified) good news in the October trade data. Although headline export growth slowed to 1.6% y/y, from 4.3% in September, a deceleration had been …
17th November 2023
During the past decade, the global economy has transitioned out of an era in which globalisation was the key driver of economic and financial relationships into one shaped by geopolitics. Previously, most governments had believed that closer economic …
16th November 2023
GDP (Q3 2023, Preliminary) Tepid Q3 GDP outturn sets the tone for 2024 GDP growth weakened sharply in the third quarter and we expect it to remain soft next year. The 0.5% q/q contraction in Q3 GDP (-2.1% annualised) was much weaker than the analyst …
15th November 2023
Edging away from ultra-loose policy The “Summary of Opinions” from last week’s Bank of Japan Monetary Policy Meeting released yesterday show a Policy Board increasingly confident that the long-term 2% target is coming into sight. The likelihood of …
10th November 2023
GDP growth appears to have all but stalled in Q3 but that was after a very strong first half. There are mounting signs that a virtuous cycle is forming between wages and prices. This is making the Bank of Japan increasingly confident that it can steer …
9th November 2023
This page has been updated with additional analysis since first publication. Wage growth will continue to accelerate Regular wage growth accelerated in September and we think it will continue to climb to around 2% next year. According to the preliminary …
7th November 2023
Threat of yen intervention remains As we had expected, the Bank of Japan retained its 1% cap for 10-year yields at this week’s meeting . However, by downgrading that cap to a “reference” and by stopping its daily fixed-rate operations offering to buy an …
3rd November 2023
We think the Bank of Japan’s continued steps towards policy normalisation are consistent with somewhat higher JGB yields and a significant rebound in the yen over the coming quarters. To recap, the BoJ made another tweak to its Yield Curve Control (YCC) …
2nd November 2023
With wage growth set to strengthen further over the coming year, we think the Bank of Japan will soon have sufficient confidence in the sustainability of higher inflation to end negative interest rates . The Bank of Japan has been arguing that wage growth …
1st November 2023
The Bank of Japan today de facto abolished Yield Curve Control and we think policymakers will call time on negative interest rates as soon as January . A casual reading of today’s statement would suggest that policy settings were left unchanged: the Bank …
31st October 2023
We are resending this publication because it was incorrectly sent as a Japan Economics Update. Note: We'll be discussing h ow much of a threat are surging bond yields to Asia’s economies in our Asia Drop-in today, 31st October. Register here to join the …
Note: We'll be discussing h ow much of a threat are surging bond yields to Asia’s economies in our Asia Drop-in today, 31st October. Register here to join the online briefing. Bank of Japan will tighten policy further next year The Bank of Japan today de …
Note: We'll be discussing h ow much of a threat are surging bond yields to Asia’s economies in our Asia Drop-in today, 31st October. Register here to join the online briefing. This page has been updated with additional analysis since first publication. …
30th October 2023
BoJ probably won’t tweak Yield Curve Control Media reports suggest that the Bank of Japan may tweak Yield Curve Control yet again at next week’s Board meeting. That’s certainly possible: 10-year JGB yields have risen sharply since the launch of the new …
27th October 2023
This page has been updated with additional analysis since first publication. Underlying inflation set to decline further While the jump in inflation in Tokyo to a seven-month high wasn’t nearly as bad as it looks, it is consistent with our view that …
Board will revise up FY2023 inflation forecasts but signal below-target inflation in 2025 We don’t expect any tweaks to Yield Curve Control but the policy is effectively over Negative rates will end in early-2024, YCC will formally be abandoned by …
24th October 2023
