Japan Economics Update

Japan Economics Update

Bank of Japan not losing control of money market

Media reports that suggest that the Bank of Japan is losing control of short-term interest rates due to its “Special Deposit Facility” encouraging banks to park reserves at the BoJ are wide of the mark. The scheme does not threaten the viability of the BoJ’s negative interest rate policy.

22 November 2021

Japan Economics Update

Virus caution by the elderly not a big downside risk

Continued caution by the elderly is a downside risk to our upbeat forecasts for private consumption, but we’re already assuming that households won’t return to their old ways anytime soon.

3 November 2021

Japan Economics Update

Fiscal policy will continue to support the recovery

The supplementary budget that PM Kishida will compile by year-end will probably contain only half as much fiscal support as was provided last year. However, given that government spending will still be significantly larger than it was in 2019 even as output returns to its pre-virus level, fiscal policy will remain expansionary. We expect the economy to return to its pre-virus path next year.

1 November 2021
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Japan Economics Update

Policy tightening still a distant prospect

The Bank of Japan shocked no one in keeping its interest rate targets unchanged today, a status quo we think will last for years. The Bank also revised down its growth forecasts for the current fiscal year and signalled that policy will have to remain loose for a prolonged period.

Japan Economics Update

Rising prices won’t prevent rebound in consumption

The weaker yen and higher energy prices will reduce the purchasing power of households a bit. But with the household savings rate still very high, this won’t prevent a strong rebound in services spending.

Japan Economics Update

Why is inflation still so low in Japan?

The continued weakness in Japan’s inflation is partly due to the recent plunge in mobile phone tariffs and the long lags between global energy prices and household utility bills. Indeed, inflation is set to rise next year. But more muted cost pressures in manufacturing than in other advanced economies coupled with the reluctance of Japanese firms to raise output prices mean that inflation won’t surge as it has elsewhere.

12 October 2021

Japan Economics Update

What does Kishida’s victory mean for Japan?

Incoming PM Kishida has provided mixed signals on fiscal policy, pledging a large near-term stimulus while retaining ambitious medium-term consolidation plans. Given that he blamed deregulation for widening inequality, structural reforms will move further down the agenda. Meanwhile, his stance on China is hawkish: it’s likely that he’ll push back against further integration and support decoupling.

Japan Economics Update

Japan’s LNG shielded from Europe price spike for now

Japan’s reliance on fixed, long-term contracts for its natural gas supply should limit the impact on consumers of the recent surge in gas spot prices currently being felt most acutely across parts of Europe.

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