Bank of Japan likely to cap bond yields before long

The global surge in long-term interest rates means that 10-year JGB yields are now the highest they have been since the launch of negative rates in 2016. While we expect the Bank of Japan to widen the tolerance band around its 0% target next month, we would expect the Bank to rein in a further rise in yields with a fixed rate auction. Meanwhile, the January activity data are consistent with our view that the second state of emergency won't result in a renewed contraction in GDP in Q1.
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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

Japan Economics Weekly

Government seeks to revive soggy chip industry

The breakdown of PM Kishida’s new supplementary budget released today showed that ¥600 billion has been allocated to reviving semiconductor manufacturing in Japan. The centrepiece of the plan is a new TSMC factory in Kumamoto Prefecture that will produce the mid-range chips critical for car production. Given recent supply disruptions caused by chip shortages, beefing up local production makes strategic sense. We think the government’s new interventionist approach to stimulating mid-range chip production may succeed, but plans to make inroads into high-range chip production are likely to fall flat.

26 November 2021

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Japan Chart Book

Vaccine bounce not too far away

Japan’s now fast-moving vaccine rollout is set to gather more speed. PM Suga’s one-million-a-day goal could be hit on a 7-day average basis as soon as tomorrow. 18-to-64-year-olds have from today been able to fill vacant slots at large-scale vaccination centres. And workplace vaccinations are due to begin on Monday. Admittedly, the official figures on vaccine doses lag the announced injection numbers. But the latter are probably more up-to-date measure: additional doses are added retrospectively to the official figures as they are confirmed. The acceleration in jabs bolsters our view that the economy is set for a strong rebound later in the year. Some media reports suggest that the government may have Tokyo under a quasi-state of emergency until the Olympics finish in early August. But we were already expecting activity to remain subdued early in Q3 as local authorities are reluctant to rapidly lift restrictions while vaccine coverage is still low and the threat from the Delta variant remains. We think the vaccine-led rebound will accelerate around the middle of Q3 and continue through Q4 as the economy gets back to full health.

16 June 2021
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