Bank of Japan still likely to cut interest rates

Bank of Japan still likely to cut interest rates

The measures announced by the Bank of Japan today lack teeth and we still expect policymakers to cut the short-term policy rate over the coming weeks.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Japan Economics Weekly

Omicron restrictions wouldn’t jolt BoJ into action

Even if Omicron proves more transmissible than Delta, its impact on Japan’s economy could vary substantially depending on how deadly it is, how well it evades vaccines, and PM Kishida’s appetite for draconian containment measures. With supply shortages already severe, fresh restrictions on Japanese manufacturers’ global supply chains coupled with a global shift in spending away from services and back towards goods could cause input price pressures to intensify further. However, we doubt any resulting boost to core goods inflation would do much more than simply offset a drag from energy inflation. As such, core inflation would stay well short of the BoJ’s 2.0% target, keeping rate hikes off the table.

3 December 2021

Japan Data Response

Labour Market & Industrial Production (Oct. 2021)

Employment fell sharply again in October despite the lifting of states of emergency declarations at the start of the month. However, it should rebound sharply across November and December in line with the revival in face-to-face service sector activity. And while industrial production only edged up in October, we think it too will rebound more strongly this month and next, potentially approaching its recent April peak in December.

30 November 2021

Japan Data Response

Japan Retail Sales (Oct. 2021)

Retail sales kept rising in October despite another drop in motor vehicles sales. With supply disruptions now starting to ease and mobility picking up, they should continue to increase.

29 November 2021

More from Marcel Thieliant

Australia & New Zealand Economics Update

RBA may make QE more flexible

We now expect the RBA to refrain from announcing a target for the overall amount of bond purchases at the July meeting while keeping the weekly pace of purchases unchanged at $5bn. A more flexible approach to bond-buying would make it easier for the Bank to end QE by mid-2022 as we anticipate.

8 June 2021

Australia & New Zealand Economics Weekly

Solid Q1 GDP more than makes up for Q2 weakness

The strong rise in GDP in Q1 has prompted us to revise up our GDP forecasts for this year. And while the Victoria lockdown will weigh on consumption growth in Q2, sentiment is holding up so we expect consumption to rebound in Q3 once the lockdown is lifted. Finally, soaring demand for housing is driving record capacity constraints in the construction industry. With the border likely to remain closed until the middle of next year, construction firms will find it difficult to alleviate the labour shortages they are facing.

4 June 2021

Japan Economics Weekly

Industry to benefit from recovery in capital spending

The slump in retail sales in April suggests that consumer spending may have fallen further during the third state of emergency. However, the medical situation is improving and the vaccination rollout is accelerating. And Japan’s traditional growth engine, its large manufacturing sector, is roaring back to life as industrial output is now above pre-virus levels. While GDP growth this year will fall short of expectations, we think it will be stronger than most anticipate in 2022.

4 June 2021
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