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The Bank of Japan is unlikely to make any major policy changes at its two-day September meeting, which concludes on Thursday. Recent economic and market developments have mostly been positive, and Governor Kuroda has shown no enthusiasm for fine-tuning. …
2nd September 2013
On balance, the available evidence suggests that spare capacity remains ample. While the falling unemployment rate points to a tightening labour market, wage growth is weak. The output gap is still large and survey-based measures also show considerable …
Today’s industrial production and labour market data show that the recovery should continue in the third quarter. Meanwhile, the ongoing rise in consumer price inflation is still largely a reflection of the weak exchange rate. … Industrial Production, …
30th August 2013
The sharp drop in retail sales in July casts doubt on the ability of “Abenomics“ to boost private consumption. While hot weather may have prevented consumers from spending, there are a number of reasons that suggest the weakness is genuine. … Retail …
29th August 2013
Higher female participation could eventually provide a small but welcome boost to the potential growth rate of the Japanese economy. However, the government’s pledge to improve the availability of childcare is not enough. Tackling widespread …
28th August 2013
The pick-up in small business confidence in August shows that firms remain confident about the economic recovery. Spare capacity is also expected to shrink further and profitabilityis strong, which should support a rebound in investment spending. … …
27th August 2013
Japan's adverse demographics and huge public debt are strengthening the pressure for labour market reforms that could both lift economic growth and save the government money. However, raising the official retirement age is unlikely to do much to boost the …
26th August 2013
Investors tend to focus on visible trade when analysing the impact of the weak yen on the current account. The impact on investment income tends to be ignored, even though it is more immediate. Since Japan’s income on its large stock of foreign assets is …
The tentative signs of acceleration in the June money supply figures turned out to be a false dawn. In July, most money supply measures expanded at the slowest pace in several months on a m/m basis. At least the expansion in bank lending remains …
22nd August 2013
The first rise in export volumes since early 2012 is unlikely to be sustained amid sluggish external demand. Meanwhile, the weak yen continues to have little impact on the trade deficit, which has widened again. … External trade …
19th August 2013
Business investment has been a clear laggard in Japan’s recovery. Structural factors, including a high level of investment compared to other countries and a large rise in the capital/GDP ratio since the early 2000s, argue against a surge in corporate …
Japan’s government could still decide to delay the consumption tax hike scheduled for April 2014. The damage to credibility may be lessened if the economy is clearly too weak and a sensible alternative plan (with fiscal “forward guidance”) is put in …
14th August 2013
Even without the need to mitigate the impact of the planned doubling of the consumption tax, the arguments for lowering Japan’s relatively high corporate tax rates would be very strong. But with a substantial fiscal squeeze coming otherwise, the arguments …
13th August 2013
Capital spending has lagged well behind the recovery in the rest of Japan’s economy, but it should now start to make a decent contribution to growth from the third quarter onwards. In turn, this may ease concern about the potential impact of the …
Last week India appointed Raghuram Rajan, a former chief economist at the IMF, as the new governor of the Reserve Bank (RBI). The new governor takes over at a tricky time, with India’s economy struggling with a range of problems. This Weekly looks at the …
12th August 2013
The conventional wisdom is that a weak yen should help boost the competitiveness of Japanese exports. However, most exports are invoiced in foreign currency, and exporters have been reluctant to lower export prices. Instead, the weak exchange rate has led …
The Bank of Japan’s decision today to refrain from any additional easing on top of that already planned reflects the Board’s conviction that the measures taken so far are working. But with signs mounting that the recovery is already slowing, further …
8th August 2013
Japan’s economy likely continued to grow at a solid pace in the second quarter of the year, even though the recent wide divergence between various measures of consumer spending raises question marks about the exact speed. However, the recovery may have …
6th August 2013
The Bank of Japan will likely leave policy settings unchanged at its two-day August meeting, which concludes on Thursday. Governor Kuroda has indicated that a condition for further easing is the implementation of the consumption tax hike. The central bank …
5th August 2013
China’s economy is set to slow further over coming years but we believe that the slump in growth many are now predicting will be avoided. … Tampering with the sales tax hike carries …
The first drop in the manufacturing PMI since late last year indicates that the recovery may now be entering a slower phase. Meanwhile wage growth remains insufficient to compensate for rising inflation as regular pay continues to fall. … Manufacturing …
31st July 2013
We are not too worried about the fall in industrial production in June, as manufacturers forecast a strong rebound in July. Small business confidence also remains at relatively high levels. … Industrial Production, Unemployment (Jun.)& Small Business …
30th July 2013
Today's retail sales figures suggest that consumer spending will again have given a solid boost to GDP growth in Q2. However, sales in June were lower than a month before, and surveys suggest that consumer spending is already slowing. … Retail Sales …
29th July 2013
Housing construction should give a boost to the wider economy over coming quarters as low mortgage interest rates support property demand. But Japan’s property market is approaching a turning point, with the number of households on the cusp of a sustained …
The first positive inflation numbers in a year largely reflect the slump in the yen. Excluding food and energy, much of which is imported, Japanese inflation is still negative and should remain so for some time. … Consumer Prices …
26th July 2013
The first June trade deficit in more than 30 years shows that the slump in the yen has had little impact on Japan’s competitiveness. With exporters declining to cut prices to boost volumes and global demand likely to remain sluggish, the trade balance is …
24th July 2013
Japan’s formal entry into negotiations on the Trans-Pacific Partnership (TPP) today is only the first step on a long road. Indeed, the talks are likely to drag on well into next year, and perhaps beyond. The decision on whether to press ahead with the …
23rd July 2013
The economic case for raising Japan’s consumption tax is overwhelming. We think the government will decide to go ahead with the first hike planned for April next year, provided GDP has not slowed too far in Q2. Indeed, not going ahead would deal a severe …
22nd July 2013
This report is only available as a PDF. Click to download. … Hard work begins after the Upper House elections …
18th July 2013
A partial resumption of nuclear energy generation is unlikely to reduce Japan’s trade deficit meaningfully. Electricity prices could fall slightly, but are likely to remain very high compared to prices in other countries. … Nuclear energy restart not a …
16th July 2013
There are now some tentative signs that broad money supply is responding to the Bank of Japan’s more aggressive easing. Since April the broadest money measure has increased at the fastest pace in y/y terms since the early 1990s. However, bank lending …
15th July 2013
Inflation expectations have jumped since the Bank of Japan’s announcement of more aggressive easing in April. Higher inflation should be beneficial for borrowers as it will erode the real value of debt, and may therefore be one of the reasons for the …
Media reports suggest that the Japanese government plans to focus increasingly on the CPI excluding food and energy when gauging progress towards overcoming deflation. We do not expect this to make much difference to monetary or fiscal policy, but it …
11th July 2013
The increasingly upbeat tone of the Bank of Japan’s comments on the economic recovery has dampened consensus expectations of additional monetary easing (on top of that already planned). However, a closer look at the latest inflation forecasts suggests …
The fall in consumer confidence in June suggests that the Abe government’s honeymoon period with the public is coming to an end. Sentiment remains at relatively high levels and could pick up again in July (in good time for the Upper House elections), …
10th July 2013
The headline indices from today’s Economy Watchers Survey (EWS) are still at high levels, but the larger-than-expected falls in June point to slower growth in Q2 and beyond than in Q1. While other surveys, including the manufacturing PMI and the Tankan, …
8th July 2013
The Bank of Japan’s two-day July meeting (which concludes on Thursday) is unlikely to result in any major policy changes. Indeed, the Board is probably much happier with recent market developments – particularly what is happening to government bond yields …
The precise results of the upcoming Upper House elections may matter less than commonly thought. While the governing LDP/New Komeito coalition will probably regain a majority of the seats, it is unlikely that it will achieve the two-thirds majority …
The recovery in Japan’s economy seems to have maintained its pace in the second quarter. Survey measures of business and consumer confidence have risen further, shrugging off the recent volatility in financial markets. However, industrial production may …
3rd July 2013
Today’s official release confirmed that labour cash earnings were still subdued in May, but we can already be confident that higher summer bonuses will deliver much better headlines for June and July. The big unknown is whether regular pay will also start …
2nd July 2013
Today’s Tankan survey confirms that Japan ' s economy is continuing to recover, albeit gradually. The survey is based on replies received up until just a few days before publication, so it is relatively timely and should capture any adverse impact from …
1st July 2013
The main factors behind the partial recovery in Japanese equities in the last few days have been external, namely the fading of concerns about the outlook for US monetary policy and the risks of a prolonged credit squeeze in China. However, the mood has …
The improvement in small business confidence in June shows that “Abenomics” is continuing to deliver real benefits despite the volatility in the financial markets. However, the detail of the Shoko Chukin Bank survey illustrates some of the challenges …
25th June 2013
The focus in the past week has been the impact on Japanese financial markets of potential changes to US monetary policy. We have revised our forecasts in the wake of the latest volatility, but the changes are mostly benign: a gradual rise in JGB yields, a …
24th June 2013
As the Fed prepares to taper its program of quantitative easing, there are some concerns in Asia that it could trigger a messy re-run of 1994. We think these concerns are exaggerated. … Monetary Indicators Monitor …
21st June 2013
The double-digit rise in Japan’s export revenues in May is clearly welcome and should be reflected in higher summer bonuses. However, the import bill is also surging and export volumes remain subdued. … Surge in exports not quite as good as it …
19th June 2013
Many commentators have dismissed the government’s 3% target for GDP growth as far too ambitious. But there are two key points that at least some have missed. First, the target applies to nominal income. The Bank of Japan has already committed to raising …
14th June 2013
The rebound in the yen and associated weakness in Japanese equities reflect fears about the outlooks for monetary policy in both Japan and the US. However, these fears look increasingly overdone. … What's behind the rebound in the …
13th June 2013
The drop back in machinery orders in April is not the disaster that the headlines suggest, but hopes of a rapid turnaround in investment are clearly premature. The main headwind is the large amount of spare capacity already available – something that …
12th June 2013
The Bank of Japan’s Policy Board was content simply to upgrade its economic assessment today. This disappointed those hoping for further monetary easing in response to the recent volatility in financial markets. However, the Board is surely right to take …
11th June 2013
