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Most analysis of the impact of the recent natural disaster on Japan’s economy has focused on the impact on production. However, the fundamental drivers of consumer spending were already weak before the earthquake struck and are likely to deteriorate …
13th April 2011
Japanese inflation was always likely to turn positive this year due to commodity price movements and base effects in the year-on-year comparison. The recent disaster means inflation is likely to be higher still. This will not lead the Bank of Japan to …
11th April 2011
Today’s retail sales and unemployment data for February were better than expected and small business confidence was high in early March. These figures pre-date the full impact of the earthquake that struck Japan on 11th March, but they do suggest that the …
8th April 2011
There were no major policy initiatives from the Bank of Japan today and we do not anticipate any at the second April meeting either. This might bring the decline in the yen to a temporary halt, but we continue to expect the currency to end the year no …
7th April 2011
Signs that the initial blow to economic activity will be even larger than first feared have prompted us to revise our 2011 forecast down further. We now expect Japan’s GDP to fall outright by 1.5% this calendar year and by 1.0% in the fiscal year from …
5th April 2011
The slump in the services PMI in March, following the collapse in the equivalent manufacturing series, all but confirms that Japan's economy contracted for a second successive quarter in the first three months of the year. Indeed, with activity also …
The breakdown of the Bank of Japan’s Tankan survey of business conditions into pre- and post-earthquake responses showed that conditions were already expected to weaken before the disaster and are now expected to do so at a faster rate afterwards. …
4th April 2011
Some commentators have argued that Japan’s ability to sell assets or print money to service its government debt means it makes no sense to worry about a “fiscal crisis”. The chances that the Japanese government will default are indeed vanishingly small. …
The first results from the Bank of Japan's March Tankan survey of business conditions, released today, are not much use because we do not yet have a split between pre- and post-quake responses. The Bank will publish a breakdown on Monday. But today's …
1st April 2011
Japan’s manufacturing PMI index is the first business survey to reflect the impact of the Tohoku Pacific Ocean Earthquake. The results were not quite as awful as many had feared but they were still bad and the detail suggests there is worse to come. … …
31st March 2011
Japanese industrial output edged up in February, but will have collapsed in March. Production could easily fall by 10% in just one month in the wake of the Tohoku-Pacific Ocean earthquake, which alone would knock around 0.6 percentage points from GDP. … …
30th March 2011
Japan’s economy will eventually recover from the Tohoku-Pacific Ocean earthquake as the initial disruption to activity is replaced by a surge in spending on reconstruction. However, the boost to growth could be largely offset by the increases in taxes and …
29th March 2011
This Update provides a calendar to show when the devastation caused by the earthquake and tsunami that struck Japan on 11th March should start to appear in the regular economic data. … When will the effects of the earthquake show in the …
28th March 2011
The risks to the markets from the Tankan seem to be skewed in just one direction . If the results o fthe Q1 survey published on Friday are in line or slightly better than consensus, they could be dismissed as “old news” before the full impact of …
Recent economic data releases have of course been overtaken by the tragedy of the earthquake and tsunami that hit Japan on 11 th March. This edition of our monthly chart book has therefore turned out to be a snapshot of the situation before the disaster …
24th March 2011
The range of views on the impact of the earthquake on Japan’s GDP remains remarkably wide and government estimates of the cost of repairing the damage, published today, appear to have caused even more confusion. It therefore seems worth reiterating our …
23rd March 2011
The economic costs of natural disasters, although nowhere near as important as the loss of life, are typically much less than those of major financial shocks. A discussion of why this is the case might shed more light on the implications of the earthquake …
The Japanese economy as a whole managed to shrug off the impact of the Kobe earthquake in 1995. However, this time it’s different: the recent disaster has had national effects and the blow to confidence could severely curtail any rebound. … Why it's worse …
21st March 2011
Following last Friday’s earthquake and tsunami we are cutting our Japan GDP growth forecast for CY 2011 from 1.0% to zero. We were already expecting GDP to contract for a second successive quarter in the first three months of 2011 and now expect this …
17th March 2011
The economic and market impact of the terrible tragedy that has hit Japan will depend partly on the amount of the damage but also on who pays the bills. A large share of the cost will probably have to be met by the government rather than the global …
14th March 2011
The Bank of Japan has announced that the two-day Policy Board meeting previously scheduled for Monday and Tuesday will now be cut short to one day and conclude on Monday. No reason was given, but the obvious explanation is that the Bank wants to bring …
The consequences of the major earthquake and tsunami that hit Miyagi Prefecture and other areas in north-eastern Japan today are not yet clear and the impact on local people is of course foremost in everyone’s minds. But the financial markets also need to …
11th March 2011
January's machinery orders data are consistent with only a feeble recovery in investment this year. Admittedly it is early days, but the bulk of the data on capital spending suggest that momentum in this potentially key driver of growth remains weak. … …
9th March 2011
The current conditions component of February's Economy Watchers Survey (EWS) was even more upbeat than the improvement signalled by the outlook in the previous month. However, the forward-looking component held steady, casting doubt on the durability of …
8th March 2011
Prime Minister Kan is pushing his budget through parliament but will face a much tougher time passing the financing bills required to fund it. The opposition may only play ball if he tenders his resignation or calls an early election. The alternative is a …
7th March 2011
The unemployment rate remained relatively high (by Japanese standards) at 4.9% in January. The forward-looking labour market indicators are mostly improving, including vacancies, but employment and real wage growth are both subdued. … Unemployment …
1st March 2011
The jumps in both industrial production and the value of retail sales in January look good but the former was smaller than expected and the latter was flattered by higher prices for food and fuel. Housing starts actually fell. However, the first business …
28th February 2011
We expect the latest spike in oil prices to be short-lived as fears over supply from the Middle East and North Africa start to ease. Nonetheless, Japanese inflation will pick up further in the coming months as a result both of higher energy prices and …
Officials and most commentators expect GDP to take off smoothly again in Q1 after the contraction in Q4. However, the latest monthly data suggest that Japan’s economy is taxiing on just one engine – exports – and even that engine appears to be …
25th February 2011
Unexpected weakness in exports and a pick-up in imports resulted in a rare trade deficit (before seasonal adjustment) in January. The consensus view that GDP will quickly rebound from the fall in the last quarter of 2010 looks even shakier too. … External …
23rd February 2011
Export-oriented manufacturing now appears to be picking up again after the double-dip in the second half of 2010. However, this is not enough on its own to justify a much more optimistic assessment of the outlook for Japan’s economy as a whole. The …
21st February 2011
The conclusion of the Bank of Japan’s two-day Policy Board meeting was as close as these occasions can be to a non-event. However, the Bank’s economic view (upgraded today) looks over-optimistic and we continue to expect monetary policy to be loosened …
15th February 2011
The 0.3% q/q (1.1% annualised) contraction in Japan's GDP in the final quarter of2010 was smaller than expected (consensus -0.5%, CE forecast -0.7%). However, the figure for Q4 was made to look less-bad by downward revisions totalling 0.5% to previous …
14th February 2011
Hopes that weakness in consumer spending and exports could be at least partly offset by a strong rebound in investment have been further undermined by the latest data on machinery orders and shipments of capital goods. Japanese companies have the …
Japanese consumers checked their pessimism in January . Nonetheless, consumer confidence and its key components remain relatively subdued. With the scope for further fiscal stimulus now largely exhausted, spending looks set to remain sluggish for the …
9th February 2011
The decline in the current conditions component of the Economy Watchers Survey (EWS) in January suggests that activity remained weak at the start of the first quarter after the likely contraction in Q4 2010. The outlook component surged, reflecting …
8th February 2011
The Japanese economy almost certainly contracted in the final quarter of 2010 as government subsidies were withdrawn. The consensus view is that this is not a major concern because GDP is widely expected to rebound in the first quarter of this year, …
7th February 2011
In a parliamentary debate today Prime Minister Kan hinted that the government does not intend to raise Japan’s consumption tax until after the next Lower House elections, which are not scheduled to take place until August 2013. This stance might reassure …
2nd February 2011
The December production survey and the January manufacturing PMI confirm that the industrial sector at least began 2011 strongly. However, much of the new output is simply being added to inventories, and the rebound is still export-led. The pick-up will …
31st January 2011
The potential market implications of a fiscal crisis may not be as clear cut as some assume, particularly for JGBs, but it is hard to see any outcome that does not involve some further weakness both in equities and in the yen. In this Weekly we suggest …
The fall in unemployment in December is obviously welcome but the big story is the collapse in retail sales. After the better news on exports yesterday, the risks to our preiiminary forecast of a 0.6% q/q fall in Q4 GDP have shifted back to the downside. …
28th January 2011
S&P’s decision to downgrade Japan’s sovereign credit rating one notch (to AA-) today may not be a big deal in itself, but it supports our fears that 2011 will be the year when Japan’s dire fiscal position finally impacts markets both at home and abroad. … …
27th January 2011
Exports ended 2010 strongly but they still fell in the final quarter and net trade is likely to be another negative for Q4 GDP. … External Trade …
Conditions faced by smaller Japanese businesses appear to have stopped deteriorating but remain more difficult than the recent peaks seen in mid-2010. What’s more, the detail of the latest survey suggests that some key ingredients of a sustainable …
26th January 2011
There were no surprises from the Bank of Japan meeting that ended today and policy was unchanged. Nonetheless, we continue to expect further easing later this year to undermine the yen as the global recovery on which the Board's forecasts are so heavily …
25th January 2011
The Bank of Japan’s Policy Board is unlikely to announce any major policy initiatives at the two-day meeting which concludes tomorrow. … Forecasts looking too …
24th January 2011
The appointment of Kaoru Yosano as Minister for the Economy and Fiscal Policy has revived discussion of the case for a hike in the consumption tax, but no decision is likely until mid-year at the earliest. In the meantime, the faltering economic recovery …
Japanese consumers' gloom deepened in December, in line with our expectations but in contrast both to the consensus and to the more positive tone in the equity market. The deterioration in confidence was predictably led by the willingness to buy durable …
17th January 2011
In light of our growing concerns about the outlook for Japan’s economy and the risks of a fiscal crisis, we are cutting our end-2011 forecast for the Nikkei 225 from 10,750 to 9,000. This might appear to sit oddly with our forecast that the yen will fall …
