Japan Economics Update

Japan Economics Update

Bank to broaden its gaze to encompass climate change

While the Bank of Japan kept its major policy settings unchanged today and will continue to do so for the foreseeable future, it extended the deadline for applications to its emergency lending facility from end-September 2021 to end-March 2022. And it announced that it will now focus its fund-provisioning measures on addressing climate change, joining other developed economy central banks in wanting to encourage financial institutions to favour green lending.

18 June 2021

Japan Economics Update

Producer price jump unlikely to boost inflation much

Producer prices are rising the most in years, but this largely reflects global supply shortages that should abate as vaccines are rolled out. We expect consumer price inflation to average a muted 0.6% next year.

19 May 2021

Japan Economics Update

Wage growth set to remain contained

The recent strength in Japan’s wage data largely reflects a compositional shift, as more lower-paid workers have dropped out of the workforce over the past year. With vacancies still far below pre-virus levels and firms no longer reporting severe staff shortages, a genuine pick-up in wage growth is still some way off. But with the unemployment rate not far above its pre-virus low, cost pressures could eventually strengthen more sharply than we are anticipating.

10 May 2021
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Japan Economics Update

Can banks withstand rising corporate defaults?

The pandemic has lifted the ratio of corporate debt to GDP to the highest level since the late-1990s and the Bank of Japan now fears that defaults could rise sharply in struggling sectors. However, there are several reasons why this is unlikely to saddle banks with large loan losses even when government support for firms is withdrawn.

Japan Economics Update

Kuroda’s term to end with inflation still below target

The Bank of Japan kept policy settings unchanged today as widely anticipated. And by predicting inflation well below its 2% target all the way to FY2023, the Bank signalled that Governor Kuroda won’t start to tighten monetary policy before his current term comes to an end.

Japan Economics Update

Fourth virus wave to slow recovery

The fourth virus wave has so far been largely concentrated in Osaka and a state of emergency declaration in that prefecture alone would not prevent national output from rebounding in Q2. However, as the surge in cases in Osaka is driven by more contagious variants of the virus, it’s likely that infections will soon rise elsewhere and we now assume that Tokyo will declare a new state of emergency before long, too. If that happens, GDP will stagnate in Q2.

Japan Economics Update

BoJ rearranges furniture to prepare for prolonged hold

The Bank of Japan’s policy review today contained various nudges to policy levers but ultimately marked neither a tightening nor an easing of policy. Governor Kuroda was keen to emphasise in the press conference that widening the target band for 10-year yields would allow a “deepening” of negative rates and the introduction of higher interest rates on a slice of bank reserves would also make rate cuts easier to implement. In our view though, the policy tweaks suggest that the Bank is settling in for the long haul with rates as they are.

Japan Economics Update

Why Japan isn’t suffering supply disruptions

Japan’s manufacturers are not suffering from the severe supply shortages that are plaguing firms in other advanced economies. This reflects lessons learned from the Great East Japan Earthquake and a low reliance on imported components. Indeed, the surge in global demand for semiconductors that is leading to disruption elsewhere will have spill-over benefits for some Japanese firms.

10 March 2021
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