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Japan Economics Focus

Japan Economics Focus

What would tighter monetary policy mean for Japan?

We don’t expect the Bank of Japan to tighten monetary policy meaningfully but, with inflation about to breach 2%, what if we are wrong? The direct impact of higher interest rates on the corporate sector would be manageable, but a stronger yen would weigh on corporate profits and business investment. Higher rates would also restrain housing-related activity and would probably cause a housing downturn, with the resulting fall in household wealth weighing on consumption.

18 May 2022

Japan Economics Focus

What would it take for inflation to surge in Japan?

A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by the Bank of Japan as policymakers would have to be convinced that the shift was permanent.

8 February 2022

Japan Economics Focus

What does deglobalisation mean for Japan?

There are good reasons to think that the natural stalling in globalisation underway won’t do much damage to Japanese manufacturers. And while an abrupt severing of supply chains between China on the one hand and the US and its allies on the other would be highly disruptive, Japanese firms would benefit in the long-run as they could step into the breach. Perhaps the biggest risk is that a more nationalist China focused on raising self-sufficiency makes it increasingly difficult for Japanese firms to operate there.

21 September 2021
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Japan Economics Focus

Transition to carbon neutral 2050 wouldn’t harm growth

Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to reach his goal of a carbon neutral 2050.

Japan Economics Focus

Sluggish inflation may boost yen further

We think that inflation in Japan will remain subdued while the pandemic will result in a rise in US inflation to above the pre-virus pace. With both the Bank of Japan and Fed likely to remain inactive for some time, the resulting real interest rate differential is likely to be a tailwind for the yen over the coming year.

Japan Economics Focus

Unpacking Suganomics

Japan’s incoming Prime Minister Suga Yoshihide has said he will “inherit Abenomics” and has been keen to emphasise that not much will change. As such, a major shift in economic policy is not on the cards. However, there are some apparent differences in view between Suga and Abe that have implications for the economy. This Focus examines what an era of Suganomics might involve.

15 September 2020

Japan Economics Focus

Will the pandemic hurt Japan’s long-run prospects?

We do not expect the coronavirus crisis to undermine Japan’s long-term prospects. Capital accumulation will slow but there shouldn’t be a big impact on the supply of labour. And given that the response to the pandemic may end up lifting productivity, we still expect productivity growth to accelerate from 0.7% over the past decade to 1.3% by 2030 and to 1.8% by 2050.

23 July 2020

Japan Economics Focus

Lasting blow to supply capacity is not inevitable

It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to revert to the path of output they were on before the crisis. Nonetheless, with demand likely to be slow to recover fully, this could still take several years. And there will be several important exceptions to this generally optimistic picture.

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