My subscription
My Subscription All Publications

Policy settings under threat but BoJ won’t yield

Despite coming under significant pressure in both bond and currency markets in recent weeks, the Bank of Japan will not respond to inflation reaching its 2% target by hiking its short-term policy rate, nor by letting go of 10-year JGB yields.
Tom Learmouth Japan Economist
Continue reading

More from Japan

Japan Economics Update

The implications of an escalating Taiwan crisis

The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant on China both as a source of imported inputs as well as a destination for exports, while major disruptions to semiconductor production in Taiwan would severely restrain Japan’s manufacturing industry despite its smaller trade links with China.

10 August 2022

Japan Chart Book

Output will return to pre-virus trend eventually

With a record virus wave sweeping across the country and consumer confidence slumping, we’re slashing our forecast for Q3 consumption growth from 0.8% to 0.2%. While the government has refrained from declaring another state of emergency, spending was weakening even before virus cases started to surge. That means that GDP will remain much weaker in the near term than the pre-pandemic trend, forcing the Bank of Japan to keep policy loose even as central banks elsewhere are tightening the screws. However, we still expect that gap to close eventually, for two reasons. First, while the long-running rise in the labour force participation rate stalled over the last couple of years, the share of the population available for paid employment is now on the rise again. What’s more, mobility has recently reached pre-virus levels for the first time since the start of the pandemic, which suggests that households are learning to live with the virus even if currently they are not spending as before. The still very high household savings rate should fall in earnest before long.

8 August 2022

Japan Economics Weekly

The rise and fall of Japan's energy imports

Japan is still struggling to wean itself off fossil fuels despite a new government push to boost solar power. However, the country has become more energy efficient over the past decade, which has helped the economy weather the impact of rising global energy prices. Meanwhile, the government has recommended a 3.3% rise in the minimum wage, the largest move on record. While overall wage growth would get a boost over the next year, we think it would still remain well below the 3.0% level the BoJ maintains is needed to sustain inflation above its 2.0% target  

5 August 2022

More from Tom Learmouth

Japan Data Response

Japan External Trade (Mar. 2022)

The export data were disappointing again in March, though exports are set for a strong rebound once supply shortages ease in hard-hit sectors such as automobiles.

20 April 2022

Japan Chart Book

Reopening could be a damp squib

With all domestic restrictions gone and the booster rollout further severing the link between cases and deaths, the conditions for a reopening bounce are in place. Moreover, consumers have ample room to splash the cash. The household savings rate remained far higher than in most other advanced economies at 9% in Q4. However, since the initial Omicron wave subsided timely data suggest that consumers are keeping their purse strings tight. While admittedly not the best guide to actual spending, Google data on the number of people at retail and recreation facilities show mobility not much higher than this time last year. And online restaurant views were still a huge 64% down on 2019 levels in the first week of April, hinting that face-to-face services spending hasn’t rebounded much yet. Add to those disappointing early signs the fact that the government hasn’t ruled out responding to future waves with yet more restrictions and the risks to our forecast for a cumulative 4% q/q rise in private consumption across Q2 and Q3 are firmly to the downside.

19 April 2022

Japan Economics Weekly

Coal, cautious consumers, the BoJ starts to relax

Japan’s ban on Russian coal is unlikely to lift domestic energy prices much given that coal import prices closely track the Newcastle spot price which have fallen sharply over the past month. A bigger risk to the strong rebound in consumption we’re expecting over the coming months comes from elderly consumers remaining cautious even after receiving three jabs. Meanwhile, the Bank of Japan has settled back into its usual pattern of modest JGB purchases. We think Yield Curve Control would only become unsustainable if the Bank is forced to conduct unlimited fixed rate auctions on a weekly basis over an extended period of time. We are sending this Weekly one day earlier than usual because our offices are closed for Good Friday on Friday, 15th April

14 April 2022
↑ Back to top