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The Nikkei rose by 60% in 2013, the largest increase in decades. A similarly stellar performance this year is obviously unlikely, but we still see room for further gains both in 2014 and 2015. While equity valuations are looking stretched, an extended …
13th January 2014
The yen is now “undervalued” on most measures. However, deviations from fundamental value can, of course, persist for a very long time and should not prove an obstacle to fresh declines. We continue to expect aggressive easing by the Bank of Japan to …
9th January 2014
The Japanese economy is entering 2014 on a strong footing. Retail sales are at their highest level since the late 1990s, business surveys and the Nikkei have climbed to multi-year highs, and employment is expanding rapidly. However, recent positive …
8th January 2014
The return of inflation prompted by the Bank of Japan's bold monetary easing may not be unambiguously positive for all sectors of the economy. Consumer spending will be weaker than otherwise and any pick-up in investment may need to be complemented by …
6th January 2014
In this final Japan Economics Weekly of the year we take a look at the local events and themes that will shape Japan’s economy and markets in 2014. The single most important scheduled event will be the increase in the consumption tax on 1st April. It will …
23rd December 2013
The Bank of Japan’s widely-anticipated decision to maintain its current policy settings for the tenth successive Board meeting today is a testament to the boldness and clarity of the monetary easing announced in April, which has not required any …
20th December 2013
The weak yen is largely to blame for the recent widening of the trade deficit. As domestic demand accelerates ahead of the consumption tax hike, the deficit may well widen further in the near-term, but we should see a narrowing once the tax has been …
18th December 2013
The Bank of Japan's Tankan survey showed a further improvement in business conditions in the fourth quarter. However, the pace of the improvement has slowed, which points to a slowdown in GDP growth. … Tankan …
16th December 2013
A year after the election that returned Mr Abe as prime minister, the interim verdict on his attempts to revitalise the economy must be that much more still needs to be done. The most radical policy change has been the adoption of a more aggressive easing …
The two-day meeting of the Bank of Japan’s Policy Board, which concludes next Friday (20 th ), is unlikely to result in any major policy changes, despite the recent flurry of speculation that fresh action is imminent. Indeed, the purely economic case for …
12th December 2013
Despite a sharp fall in the money multiplier, the growth rates of bank lending and broad money reached fresh highs in November. … Monetary Indicators Monitor …
11th December 2013
The rise in machinery orders in October leaves the uptrend intact and should ease concerns that the fledgling recovery in business investment has already come to an end. … Machinery Orders …
The Business Outlook Survey shows that companies are sanguine about the impact of the consumption tax hike, but households have lost confidence in Abenomics. … Business Outlook Survey (Q4) & Consumer Confidence …
10th December 2013
The downward revision in the second estimate of Q3 GDP largely reflects weaker inventories and is therefore no big deal. While demand excluding inventories was almost stagnant, the Economy Watchers Survey shows that the recovery remains intact. … GDP …
9th December 2013
The details of the fiscal stimulus package unveiled on Thursday were disappointing. The corporate tax surcharge will be phased out a year earlier than scheduled, but there was no mention of a cut in the standard rate. Instead, the measures focused on …
Preliminary data show that the recovery slowed last quarter, but this follows unsustainably strong growth in the first half of the year, and is thus no cause for concern. Indeed, several business surveys have reached multi-year highs in recent months, …
6th December 2013
We continue to expect the Bank of Japan to announce further substantial monetary stimulus eventually, but those now speculating that it might act within the next few months are likely to be disappointed. The case for loosening monetary policy to encourage …
3rd December 2013
The rise in wages in October largely reflects volatile overtime payments, while regular pay continues to fall. Looking ahead, there are a number of reasons to be sceptical about an acceleration in wage growth. … Labour Cash Earnings …
The fall in capital expenditure last quarter dashed hopes that non-residential investment may be revised up in the second estimate of Q3 GDP. Corporate profitability weakened, especially in the manufacturing sector, albeit from high levels. … Capital …
2nd December 2013
Consumption has climbed to new highs as a share of demand in recent years, even though the share of income going to workers has fallen. While this can largely be explained by the effects of population ageing rather than a change in savings behaviour, …
Despite a slower-than-expected rise in industrial production in October, the outlook for the sector remains buoyant. Meanwhile, there are signs that domestic inflationary pressure is picking up even as the impact of the weak yen is fading. … Consumer …
29th November 2013
Despite a fall in October, the broad upward trend in retail sales remains intact. Sales are likely to surge in the coming months ahead of the consumption tax hike, but should plunge thereafter. … Retail Sales …
28th November 2013
The recent escalation of the conflict over the Senkaku islands may lead to renewed disruption of bilateral trade and investment between Japan and China. The experience from last year’s flare-up in tensions suggests that Japan’s domestic economy would only …
27th November 2013
With even some members of the Bank of Japan’s Policy Board expecting inflation to remain well below the 2% target in FY 2015, there is growing speculation about how and when the Board will respond to any shortfall. Our view is that the Board is likely to …
26th November 2013
Small business confidence reached a fresh high in November, but will likely worsen once the consumption tax is raised next April. … Small Business Confidence …
Japan’s dual labour market undoubtedly has some economic costs, as non-regular workers are much less productive than regular employees. However, the degree of labour market duality is not vastly different from other OECD countries, and the majority of …
25th November 2013
The Bank of Japan’s decision to maintain the current pace of asset purchases after its Board meeting today was no surprise. Governor Kuroda emphasised the Bank’s willingness to ease further, but also that it is too early to conclude that the planned …
21st November 2013
The surge in imports in October partly reflects a weak base from last year, as well as a curious spike in energy imports. The trade deficit may well widen further in the near-term as spending is brought forward ahead of April's consumption tax hike, but …
20th November 2013
The statements following the two-day meeting of the Bank of Japan's Policy Board, which concludes on Thursday, are likely to be dovish even if there is no additional loosening just yet. It has been clear for some time that several Board members have major …
18th November 2013
While the money supply grew at the fastest pace since the late 1990s in October, bank lending has decelerated slightly. But record low interest rates and easy lending standards should provide further support to loan volumes. … Monetary Indicators Monitor …
The government has pledged to halve its primary deficit by 2015. However, the ongoing surge in public spending casts severe doubt on policymakers' commitment to fiscal austerity despite the planned increase in the consumption tax hike. Unless the …
The slowdown in Q3 GDP follows unsustainably strong growth in the first half of the year and is therefore no cause for concern. The economy is likely to regain momentum in the near-term as spending is brought forward ahead of April's consumption tax hike. …
14th November 2013
Despite a modest fall in September, the uptrend in machinery orders remains intact and points to a further rebound in business investment. However, the recovery may not be strong enough to offset the likely fall in housing investment after April's …
13th November 2013
The slump in consumer confidence in October shows that households feel uncomfortable with the combination of rising prices and falling incomes. Meanwhile, the money supply grew at its fastest pace since the late 1990s in October. … Money Supply & …
12th November 2013
The rise in the outlook component of the Economy Watchers Survey to a six month high suggests that economic conditions remained robust at the start of the fourth quarter. Meanwhile, the record current account deficit in September was partly a statistical …
11th November 2013
The impact of the Great East Japan Earthquake on energy imports is often overestimated. By contrast, the impact on exports is generally overlooked. The disaster has significantly reduced how much energy is available to domestic producers and has tainted …
If Japan’s past is a guide, some spending will be brought forward ahead of April’s consumption tax hike and it will slump thereafter. The experience from the 1997 increase in the same tax suggests that investment will pick up sooner and rise more than …
8th November 2013
There are tentative signs in recent data of an increase in spending that we suspect is linked to April's consumption tax hike. In particular, construction orders have soared as homebuilders seek to avoid the higher sales tax. Meanwhile, business surveys …
7th November 2013
The public debt problem in Japan has of course been brewing for many years without boiling over into a full-blown crisis. However, adverse demographics could soon cause the government’s finances to spiral out of control. Japan’s low potential growth rate, …
4th November 2013
Japan’s trade deficit has reached a record high in recent months. This is often attributed to a surge in energy imports after the shutdown of the country’s nuclear reactors. However, energy import volumes are no higher than they were before the Great East …
1st November 2013
The BoJ today only marginally tweaked its economic forecasts, and took a sanguine view of the upcoming consumption tax hike. It was therefore no surprise that policy settings were left unchanged. However, with underlying inflaton likely to fall short of …
31st October 2013
The manufacturing PMI reached a three-year high in October and points to a further rebound in industrial production in coming months. Meanwhile, labour cash earnings edged up in September, but the sharp fall in real wages casts doubt on the recent …
Today's data show that economic momentum remains strong. Small business confidence and retail sales both reached new multi-year highs, helped by strong employment gains. … Unemployment Rate, Retail Sales (Sep.) & Small Business Confidence …
29th October 2013
Japanese firms have accumulated record amounts of cash and the conventional wisdom is that it is only a matter of time before this triggers a surge in investment. Our view, in contrast, is that capital spending is being held back by still-ample spare …
28th October 2013
Headline inflation rose further in September, but the acceleration was largely due to a spike in fresh food prices. While a gradual closing of the output gap and stubbornly high import price inflation point to a further rise in consumer price inflation, …
25th October 2013
The main agenda item at next Thursday’s meeting of the Bank of Japan’s Policy Board will be the new GDP and inflation forecasts to be published in the Bank’s “Outlook for Economic Activity and Prices”. This report is likely to be upbeat, which may dampen …
24th October 2013
The BoJ’s Senior Loan Officer Survey shows that household loan demand remains very strong. Corporate loan demand is weaker but record low lending rates and an ongoing easing in lending standards should support lending to firms in the months ahead. … …
22nd October 2013
The widening of the trade deficit to a record high in September highlights that the sharp fall of the yen over the past year has had little impact on export competitiveness. While lower import prices should provide some support in the coming months, the …
21st October 2013
Japan’s stock of inward FDI is by some way the lowest in the OECD, reflecting a strict regulatory regime and administrative barriers at the local level. With foreign firms significantly more productive than local companies, this has major economic …
Easy financial conditions and record-low bank lending rates continue to propel a strong expansion of the monetary aggregates and bank lending. … Monetary Indicators Monitor …
16th October 2013
