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 Economics Weekly

Carmakers will struggle even after shortages abate

The disruptions to supply chains from Delta outbreaks across Southeast Asia that resulted in another big drop in car exports in September will ease soon. However, carmakers are responding with lower capital spending and are lagging their US and European counterparts in electric vehicle sales. The upshot is that the sector won’t return to former glory.

22 October 2021

Japan Data Response

Japan Consumer Prices (Sep. 2021)

Headline inflation in September turned positive for the first time this year due to spikes in fresh food and energy inflation. As the drag from mobile phone tariffs fades in the first half of next year, underlying inflation will turn positive. However, we think it will struggle to break past 1%.

22 October 2021

Bank of Japan Watch

Bank to look through weaker yen and supply shortages

Sitting comfortably with continuity candidate PM Kishida in charge, the Bank of Japan won’t alter its major policy settings at its October meeting. And we doubt the Bank will respond with policy tweaks to the recent weakening in the yen, nor to continued supply chain disruptions.

21 October 2021

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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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