PM frontrunner Kono may favour sharper taper

Dug in for an extended hold, the Bank of Japan won’t alter its major policy settings at its September meeting. Further ahead though, PM Suga’s successor – to be elected in two weeks’ time – may look towards prodding the Bank into shrinking its balance sheet.
Tom Learmouth Japan Economist
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Japan Economics Weekly

Kishida dissolves parliament, firms look to seniors

The ruling LDP appears to be bracing for a slimming down of its lower house majority in the general election that will take place on 31st October. That would make tangible structural reform progress under PM Kishida even less likely. And while a large fiscal stimulus package will be compiled immediately after the election, it’s likely to sustain the elevated fiscal support of the past year rather than act as a fresh driver of growth. Meanwhile, firms appear to be readying themselves for renewed labour shortages once the economy reopens by drawing up plans to re-employ more seniors. We expect further increases in over-60s employment to drive labour force participation higher over the next few years.

15 October 2021

Japan Data Response

Japan Machinery Orders (Aug. 2021)

The fall in machinery orders in August supports our view that the recovery in business investment stalled a little across Q3. But private investment should rebound more strongly in Q4 and into next year provided vaccines allow economic activity to return to somewhere near normal.

13 October 2021

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

More from Tom Learmouth

Japan Data Response

Japan Machinery Orders (Jul. 2021)

The rise in machinery orders in July and optimistic projections for August and September support our view that business investment will rise strongly again across Q3. And private investment should continue to rebound in Q4 and into next year as vaccines allow domestic restrictions to be lifted.

15 September 2021

Japan Economics Update

Ishiba could clear path for Kono to become PM

Kono Taro is emerging as the favourite to succeed Mr Suga as PM. While Kishida and Takaichi are viewed as safer hands by LDP party elders, the outspoken Kono’s popularity with the public gives him the edge on the eve of a general election where the ruling coalition fears losing seats. And if rumours that Ishiba Shigeru will not stand and instead back Mr Kono turn out to be true, then that would leave neoliberal reformer Kono as the clear frontrunner. While we expect a relatively large supplementary budget to be compiled in October regardless of who wins, each of the four main contenders are likely to take differing approaches to structural reform.

8 September 2021

Japan Data Response

Japan Wages & Household Spending (Jul. 2021)

Wage growth recovered in July and it should strengthen further over the coming months as the labour market tightens and vaccines fuel a further recovery in overtime pay. Meanwhile, the drop in household spending in July supports our view that consumer spending will fall across Q3.

7 September 2021
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