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Japan Economics Weekly

Japan Economics Weekly

Respite for BoJ doesn’t weaken case for a policy tweak

Pressure on the Bank of Japan’s Yield Curve Control framework eased this week. On the campaign trail for the Upper House election, where inflation has emerged as a key concern, Prime Minister Kishida said that monetary tightening would do more harm than good. Even more welcome for the BoJ, pressure emanating from the bond market has dropped back too. It had to buy less than a tenth as many JGBs this week as last. Some might feel that this reduces the need to shore up the policy framework. But a respite provides a window in which to make it more resilient.
Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

24 June 2022

Japan Economics Weekly

Yen to weaken further, domestic demand picking up

While the Bank of Japan was clearly in no mood today to give any ground to the bond traders testing the ceiling of Yield Curve Control, it would be even less keen to effectively shut down the JGB market by hoovering up the outstanding bonds it doesn’t already own. As such, we  think it will try to relieve pressure by raising the ceiling before long. However, that wouldn’t be enough to put a lasting floor under the yen, which we still expect to end the year weaker than it is today.  Elsewhere, the jumps in machinery orders in April and in import volumes in May are encouraging signs that domestic demand is rebounding strongly. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

17 June 2022

Japan Economics Weekly

Jump in working hours points to strong Q2 rebound

The recent jump in overtime hours largely reflects severe labour shortages at hotels and restaurants rather than any surge in demand. However, with overall working hours on track for a strong rise this quarter, we’re sticking to our above-consensus forecast for Q2 GDP growth.

10 June 2022
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Japan Economics Weekly

Rising prices won’t prevent solid rebound in Q2

The renewed drop in industrial production and the weakness in retail sales volumes in April has raised concerns that Japan’s recovery will continue to disappoint. However, with consumer prices rising far less than elsewhere, Japan isn’t facing a cost-of-living crisis. Indeed, high frequency data suggest that consumption picked up pace in May as the Omicron wave subsided. The upshot is that we’re sticking to our upbeat forecasts for GDP growth for this quarter and next.  

Japan Economics Weekly

Corporate tax shakeup, Shanghai parts shortages

The government aims to lift the standard corporate tax rate while providing more generous tax breaks for capital spending. We doubt this will have a noticeable impact on business investment, not least because firms have found ways to circumvent corporate taxes in recent years. Meanwhile, Japan’s car sector continues to be afflicted by supply shortages, this time as a result of the lockdowns in China. We suspect that shortages won’t fully disappear until the end of the year.

Japan Economics Weekly

Japan to outperform as cost of living rising less sharply

GDP shrank yet again in Q1 as the Omicron wave brought the recovery in consumption to a halt. However, services spending was more resilient than we had anticipated and there are good reasons to think that Japan’s economy will outperform other large advanced economies over the coming quarters.  

Japan Economics Weekly

Virus fears waning, Bank of Japan plans could change

We doubt that the spike in mobility during Golden Week is a harbinger of a rapid rebound in consumer spending. Mounting concerns about rising living costs and lingering virus fears among the elderly will keep the savings rate well above pre-virus levels. Meanwhile, the Bank of Japan this week ruled out widening the tolerance band around its 10-year yield target. However, markets remain unconvinced as yields continue to trade close to the ceiling of the band. We still expect the Bank to come under renewed pressure to defend the target, eventually forcing it to widen the tolerance band.  

Japan Economics Weekly

2.5% inflation, border to reopen to tourists in June

Despite a huge pot of excess savings accumulated over the past couple of years, today’s 2.5% inflation print for April is likely to slow the post-Omicron recovery by spooking consumers not used to price hikes. Meanwhile, we doubt PM Kishida’s announcement yesterday that he will reopen the border to tourists in June will do much to repair Japan’s shrinking current account surplus given that Chinese tourists won’t be returning any time soon. As such, we still expect the yen to weaken further to 140 against the dollar by the end of this year. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

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