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Squeeze on lending margins will fuel BoJ’s concerns

The fall in long-term bank lending rates in November will reinforce the concerns of some BoJ Board members that ultra-loose monetary policy is harming the profitability of private banks. November’s drop in long-term lending rates was the sharpest since the BoJ last cut its policy rate in 2016 and is evidence that the squeeze on bank lending margins has not come to an end yet. It came in spite of 10-year JGB yields rising rapidly towards the end of last year. In all, the fall in long-term interest rates supports our view that concerns over financial stability will prevent the Bank of Japan from introducing any fresh easing measures for the foreseeable future.
Tom Learmouth Japan Economist
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Japan Chart Book

Output will return to pre-virus trend eventually

With a record virus wave sweeping across the country and consumer confidence slumping, we’re slashing our forecast for Q3 consumption growth from 0.8% to 0.2%. While the government has refrained from declaring another state of emergency, spending was weakening even before virus cases started to surge. That means that GDP will remain much weaker in the near term than the pre-pandemic trend, forcing the Bank of Japan to keep policy loose even as central banks elsewhere are tightening the screws. However, we still expect that gap to close eventually, for two reasons. First, while the long-running rise in the labour force participation rate stalled over the last couple of years, the share of the population available for paid employment is now on the rise again. What’s more, mobility has recently reached pre-virus levels for the first time since the start of the pandemic, which suggests that households are learning to live with the virus even if currently they are not spending as before. The still very high household savings rate should fall in earnest before long.

8 August 2022

Japan Economics Weekly

The rise and fall of Japan's energy imports

Japan is still struggling to wean itself off fossil fuels despite a new government push to boost solar power. However, the country has become more energy efficient over the past decade, which has helped the economy weather the impact of rising global energy prices. Meanwhile, the government has recommended a 3.3% rise in the minimum wage, the largest move on record. While overall wage growth would get a boost over the next year, we think it would still remain well below the 3.0% level the BoJ maintains is needed to sustain inflation above its 2.0% target  

5 August 2022

Japan Data Response

Japan Labour Cash Earnings (Jun. 22)

The jump in wage growth in June was mostly driven by a surge in summer bonus payments and the Bank of Japan’s 3% wage growth target will remain out of reach for a while yet. More positively, the strength in overtime hours suggests that Japan is finally learning to live with the virus.

5 August 2022

More from Tom Learmouth

Japan Data Response

Japan Retail Sales & Industrial Production (Apr. 2021)

The sharp fall in retail sales and weaker than expected rise in industrial production in April suggests the economy was subdued even before states of emergency were declared, supporting our view that the economy won’t have rebounded from its weak Q1 this quarter.

31 May 2021

Japan Economics Weekly

State of emergency extension, Olympic fifth wave?

While the fourth wave of coronavirus has broken, with hospital capacity still stretched the government will today extend the emergency declarations covering half of the economy until 20th June. That supports our view that output won’t recover this quarter after a weak Q1. Further ahead, with the vaccine rollout accelerating we still expect a strong rebound from mid-Q3. But while the risks of importing dangerous virus variants during the Olympics are overblown, there certainly are downside risks from the more transmissible Indian variant which has already begun to spread in Japan. If it causes a fifth wave, then that would delay the economy’s recovery still further.

28 May 2021

Japan Data Response

Japan Labour Market (Apr. 2021)

The unemployment rate spiked back up in April after a surprise sharp fall in March. However, we think the jobless rate will fall back to around 2.6% over the coming months as employment resumes its recovery.

28 May 2021
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