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Bank to look through weaker yen and supply shortages

Sitting comfortably with continuity candidate PM Kishida in charge, the Bank of Japan won’t alter its major policy settings at its October meeting. And we doubt the Bank will respond with policy tweaks to the recent weakening in the yen, nor to continued supply chain disruptions.
Tom Learmouth Japan Economist
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Japan Data Response

Japan Flash PMIs (May 2022)

While the flash manufacturing PMI was little changed in May, the details suggest that supply shortages worsened yet again, weighing on output and lifting prices.

24 May 2022

Japan Chart Book

Tweak to Yield Curve Control still on the table

The Bank of Japan’s attempt to relieve pressure on the Yield Curve Control framework by offering to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at yields of 0.25% for as long as necessary appears to have done the trick so far. Despite offering to do so every working day, the Bank hasn’t yet had to buy any bonds through the fixed rate method in May. The Bank’s latest confidence trick – along with the recent fall in global yields – has dissuaded the bond vigilantes for now. However, we think that the Bank will have to defend its ceiling with heavy purchases once again if – as we expect – US Treasury yields start rising again. And media reports suggests that some of the public are pinning blame on the BoJ for rising prices stemming from a weaker yen. As such, there’s still a good chance that the BoJ will ultimately decide to relieve pressure by widening its tolerance band on 10-year yields from the current ±0.25% to ±0.50% later this year.

23 May 2022

Japan Economics Weekly

Japan to outperform as cost of living rising less sharply

GDP shrank yet again in Q1 as the Omicron wave brought the recovery in consumption to a halt. However, services spending was more resilient than we had anticipated and there are good reasons to think that Japan’s economy will outperform other large advanced economies over the coming quarters.  

20 May 2022

More from Tom Learmouth

Japan Data Response

Japan External Trade (Sep. 2021)

    The sharp fall in exports in September suggests that supply shortages are severely hampering manufacturing activity in some sectors. However, we think exports will soon bounce back as supply shortages for car producers gradually ease and machinery exports continue to expand at a fast pace.

20 October 2021

Japan Chart Book

Domestic headwinds fading

While parts of Japan’s manufacturing sector remain under severe pressure from global supply chain shortages, domestic headwinds to the recovery have dissipated further in recent weeks. That supports our view that a strong rebound is brewing. Breaking 23,000 in late-August, the seven-day average of new infections has fallen to around 500 this week – the lowest in over a year. And with the number of patients in intensive care also at its lowest in a year, hospitals now have clear breathing space. That reduces the chances of fresh states of emergency having to be declared to combat a potential winter wave. In recent days mobility has been stronger than it was at the same stage in October 2020 which ­– by some measures – was the strongest month of the pandemic so far for consumption. And Tokyo announced today that it will on Monday remove its 9pm curfew request for the more than 80% bars & restaurants complying with the latest virus guidelines. Driven by a strong rebound in face-to-face service sector activity, we expect GDP to rise by 1.7% q/q, taking it above the pre-virus level this quarter.

19 October 2021

Japan Economics Weekly

Kishida dissolves parliament, firms look to seniors

The ruling LDP appears to be bracing for a slimming down of its lower house majority in the general election that will take place on 31st October. That would make tangible structural reform progress under PM Kishida even less likely. And while a large fiscal stimulus package will be compiled immediately after the election, it’s likely to sustain the elevated fiscal support of the past year rather than act as a fresh driver of growth. Meanwhile, firms appear to be readying themselves for renewed labour shortages once the economy reopens by drawing up plans to re-employ more seniors. We expect further increases in over-60s employment to drive labour force participation higher over the next few years.

15 October 2021
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