My subscription
My Subscription All Publications

Investor rebellions getting harder for BoJ to put down

The Bank of Japan had to go to unprecedented lengths to push 10-year yields back down into its ±0.25% tolerance band this week. If this week’s rate of JGB purchases were sustained through April, the BoJ’s holdings would rise by a record ¥13 trillion this month. Keeping that rate going would see them own all outstanding JGBs by 2025. And given that one of the motivations for introducing Yield Curve Control was to keep yields low with smaller bond purchases, a prolonged conflict with JGB traders would likely end with the BoJ giving up its yield target. The resulting rise in yields probably wouldn’t impact private sector borrowing costs much, but it could restrain the government’s ability to loosen fiscal policy.  
Tom Learmouth Japan Economist
Continue reading

More from Japan

Japan Economics Weekly

Demographic woes persist, tourists waiting at the gate

An exodus of long-term migrants contributed to the 0.6% fall in Japan’s population last year but with border controls loosened since March net migration is bouncing back strongly. Even so, we still see GDP growth settling around 0.5% over the longer-term as a shrinking workforce offsets productivity gains. Meanwhile, Japan remains a highly popular tourist destination and once the onerous procedural requirements for entry are lifted, probably sometime in Q4, tourist arrivals and spending should rebound strongly.

12 August 2022

Japan Economics Update

The implications of an escalating Taiwan crisis

The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant on China both as a source of imported inputs as well as a destination for exports, while major disruptions to semiconductor production in Taiwan would severely restrain Japan’s manufacturing industry despite its smaller trade links with China.

10 August 2022

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

More from Tom Learmouth

Japan Data Response

Bank of Japan Tankan (Q1 2022)

The fall in the Q1 Tankan suggests that GDP almost certainly contracted last quarter. However, non-manufacturing sentiment held up better-than-expected during the Omicron wave and the labour market continued to tighten. Indeed, we think output will rebound strongly in Q2.

1 April 2022

Japan Data Response

Japan Industrial Production (Feb 2022)

Industrial production was broadly unchanged in February after two monthly falls that still left output well below its pre-supply shortages peak.  

31 March 2022

Japan Data Response

Japan Retail Sales (Feb. 2022)

Retail sales dropped again in February, making it almost certain that consumer spending fell across Q1. Looking into Q2 though, private consumption is well set for a strong, booster-boosted rebound.

30 March 2022
↑ Back to top