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Japanese banks are the one sector benefitting from the BoJ’s tightening cycle as higher interest rates lift their income by more than their expenses. And although they’ve struggled more recently amid the “Liberation Day” fallout, we think their …
30th April 2025
Manufacturing sector shrugging off trade tensions Japan’s economy approached Liberation Day with solid momentum and firms’ production forecasts suggest that the manufacturing sector won’t be affected much by higher US tariffs. The 1.1% m/m fall in …
Parts of South East Asia, notably Vietnam, as well as India are well placed to immediately gain market share in response to penal US tariffs on Chinese imports. But uncertainty over the future tariff landscape will deter investment in additional capacity …
29th April 2025
Our base case is that faster growth in household incomes will result in the recent pick-up in rent inflation broadening from major cities to the rest of the country. However, there’s a risk that population outflows from rural areas will result in rents …
28th April 2025
Underlying inflation set to surpass 3% Inflation excluding fresh food and energy picked up from 2.6% to 2.9% in March. And the big jump in inflation in Tokyo in April at first glance would suggest that the Bank of Japan is starting to fall behind the …
25th April 2025
Board will revise down forecasts for GDP growth due to trade tensions But Bank will signal continued confidence in meeting its 2% inflation target We expect another hike in July, with the policy rate climbing to 1.5% by 2027 The Bank of Japan will …
24th April 2025
Reuters’ latest monthly Tankan survey, which was conducted between 2 nd and 11 th April, showed that business conditions among large manufacturers rose to an eight-month high. Granted, that survey has often lagged behind the manufacturing PMI around …
23rd April 2025
Tariff impact may not be as big as feared The OIS markets imply that it’s a coin flip whether the Bank of Japan will raise rates again this year. That makes sense because the Bank sent some rather dovish signals this week. Governor Ueda noted in an …
17th April 2025
Exports will rebound across Q2 While export values fell in March, we expect them to rebound over the coming months as US consumers rush to place orders before the suspension of reciprocal tariffs ends in July. The annual increase in export values slowed …
Japan's economy will be hit less hard than many other large economies by the recent escalation of the trade war. While mounting uncertainty will keep the Bank of Japan on the sidelines for a few months, we expect the labour market to remain tight and …
15th April 2025
BoJ will stay on sidelines for now The relief that followed the suspension of reciprocal tariffs for all countries except China on Wednesday proved short-lived as bilateral tariffs between China and the US are still being ratcheted up to eye-watering …
11th April 2025
President Trump’s trade war has created material downside risks for the global economy. Our forecasts assume that tariffs on most countries outside China will stay at 10% and retaliation by other governments will be moderate. In this scenario, global GDP …
10th April 2025
The trade war has merely delayed rather than scuppered further policy tightening by the Bank of Japan. Accordingly, we’re sticking to our forecast that the 10-year JGB yield will rise to 1.75% by year-end. Whereas the 10-year US Treasury yield has on net …
Even if Japan’s attempts to negotiate a trade deal with Trump succeed quickly, concerns about the impact of escalating tensions between the US and other trading partners will force the Bank of Japan to keep interest rates unchanged for a few more months. …
9th April 2025
Underlying wage growth remains strong We suspect that the sharp slowdown in regular earnings growth in February is just a sampling anomaly rather than a sign of genuine weakness. With this year’s spring wage negotiations resulting in a larger pay hike …
7th April 2025
Tankan consistent with further tightening Compared to other Asian economies, the 24% US tariff on imports from Japan announced this week looks rather modest. Nonetheless, the chances that the Bank of Japan will hike rates in May as we’re forecasting have …
4th April 2025
We hosted two online Drop-In sessions on 3 rd April to discuss the fallout from President Trump’s Liberation Day tariff announcement. (See a recording here .) This Update contains answers to some of the questions that we received and links to several more …
3rd April 2025
Asian economies will be hit harder than most by US reciprocal tariffs. We were already expecting more rate cuts than the consensus in most countries in the region, but there’s now a risk that central banks in Malaysia and Taiwan may have to start easing …
Tankan suggests economy is firing on all cylinders While business conditions were unchanged in the latest Tankan survey, the survey suggests that an increasingly overheating economy is creating strong price pressures. The Tankan’s headline measure of …
1st April 2025
Time to act decisively has come The US this week announced a 25% tariff on auto imports and Japan will be among those economies most affected. (See here .) While PM Ishiba has said that “all options are on the table” when it comes to Japan’s response, our …
28th March 2025
While US tariffs are a headwind, the continued acceleration in consumer prices will only heighten concerns among Bank of Japan’s Board members about inflation overshooting its 2% target. As the Bank should have a rough sense of the severity of US trade …
In this Update, we answer several key questions about how the announced 25% tariffs on US imports of autos and parts might affect the global economy and the US itself. Mexico, Slovakia and Korea are most exposed with up to 1.6% of GDP at risk. But the …
27th March 2025
It is becoming clear that President Trump’s actions are driven by both his fixation on reducing the US trade deficit and his transactional approach to dealing with other countries. So, even though the Trump administration’s ideas to transform the entire …
25th March 2025
Export volumes jump the most on record While export values have surged in recent years as the weaker exchange rate lifted the yen-value of shipments and firms passed on soaring input costs, the same can’t be said for export volumes, which have tread water …
21st March 2025
Strength in inflation suggests BoJ will hike rates again soon The strength in underlying inflation in February suggests that the Bank of Japan could hike rates at its next meeting in May but we still expect that uncertainty over the impact of US tariffs …
20th March 2025
With the Bank of Japan sounding a bit more worried about downside risks to activity from US tariffs than about upside risks to inflation, we’re pushing back our forecast for the next rate hike from May to July. However, we still expect the Bank to lift …
19th March 2025
Bank of Japan will lift rates to 1.5% by 2027 The BoJ’s decision to leave policy settings unchanged today was widely anticipated but we still think that the Bank’s tightening cycle has much further to run. After having lifted its policy rate to 0.5% in …
While trade tensions create downside risks, we expect GDP growth to be around trend this year. And following another strong showing in this year’s spring wage negotiations, wage growth will remain high enough to keep inflation above the Bank of Japan’s 2% …
17th March 2025
Shunto results in largest pay hikes since 1991 Japan’s Trade Union Confederation (RENGO) today released the first round of results of this year’s spring wage negotiations (Shunto). Including seniority pay hikes, RENGO’s preliminary tally showed a 5.46% …
14th March 2025
There are good reasons for the BoJ to strip out only fresh food rather than all food from its preferred measure of core inflation. To be sure, the fact that inflation excluding all food and energy has fallen to just 1.6% underlines that price pressures …
Bank will keep policy unchanged next week but we expect a 25bp hike in May Strong inflation and wage growth warrant more tightening; US tariffs key risk Rates will reach neutral territory of 1.5% in 2027 The Bank of Japan will keep policy settings …
12th March 2025
Wage growth will accelerate further Regular pay growth surged in January and with this year’s spring wage negotiations set to result in stronger pay hikes than last year, wage growth will pick up further over the course of the year. According to the …
9th March 2025
Biggest pay hikes since 1991 forthcoming Japan’s Trade Union Confederation (RENGO) revealed yesterday that its members are requesting a 6.09% rise in pay (including seniority pay hikes) in this year’s spring wage negotiations (Shunto). That marks an even …
7th March 2025
Shunto set to result in stronger pay hikes than last year With Japan’s trade unions requesting an even larger pay hike in this year’s spring wage negotiations (Shunto) than they did a year ago, we now expect the negotiations to result in a base pay hike …
6th March 2025
The events of the past two weeks have called into question whether the US is severing ties not just with adversaries such as China but also allies, including Canada, Mexico and the European Union. This would radically alter the shape of the fractured …
4th March 2025
Japanese firms will suffer some collateral damage from the 25% US tariff on imports from Canada and Mexico. And if Trump presses ahead with tariffs on imports from Japan, carmakers would be most affected. Nonetheless, we suspect that the sales of Japanese …
Ratio of deaths to births reaches record high According to preliminary data released this week, the number of births in 2024 fell by 5% to a record low of 721,000, while the number of deaths edged up by 1.8% to a record high of 1,62mn. Even though net …
28th February 2025
Inflation on track to overshoot BoJ’s forecasts The January activity data suggest that GDP will have fallen this quarter, but that would follow strong gains in previous quarters. With inflation set to overshoot the Bank of Japan’s forecasts, we still …
Will the Bank of Japan be doing a victory lap this year in its quest to get inflation sustainably to 2%? And how far will it ultimately raise the policy rates? As the preliminary results of this year’s Shunto wage negotiations are released on 14th March …
Starts align for further rate hikes A recent Reuters survey showed that most economists expect just one more 25bp rate hike by the Bank of Japan this year. Even so, the financial markets are starting to come around to our view that the Bank will lift …
21st February 2025
This page has been updated with additional analysis since first publication. PMIs point to further rate hikes The further rebound in the composite PMI in February coupled with the persistent strength in manufacturing output prices suggests that the Bank …
Softer inflation ahead The acceleration in headline inflation and strength in underlying inflation in January should add to the Bank of Japan’s confidence that it can continue its tightening cycle over the coming quarters. In January, headline inflation …
20th February 2025
The decision by the US and Russia to “lay the groundwork” to end the war in Ukraine marks a potentially significant turning point after three years of conflict. Negotiations will take time and the macroeconomic implications will depend on the features of …
18th February 2025
While household incomes are rising the most since the early 1990s, households are saving rather than spending the bulk of those gains. And with real income growth set to slow this year, we expect consumption growth to remain solid rather than …
17th February 2025
GDP growth should settle around trend this year Even though the jump in Q4 GDP wasn’t broad-based, it supports our view that the Bank of Japan will tighten policy more aggressively this year than most anticipate. According to the preliminary estimate …
10-year JGB yield climbs to 14-year high Even though the 10-year US Treasury yield has been little changed, the 10-year JGB yield rose to a 14-year high of 1.35% this week and we think that it will climb further to 1.75% by year-end. See our Global …
14th February 2025
Soaring food inflation has been the key driver behind the recent strength in headline inflation. Processed food inflation will remain high for a while yet but that won’t prevent overall food inflation from falling sharply as the surge in rice and fresh …
13th February 2025
Our Japan Chart Pack has been updated with the latest data and our analysis of recent developments. With real household incomes rising the most in years and the savings rate rather high, the rebound in consumer spending will continue in 2025. And with …
12th February 2025
Wage growth strongest since 1997 According to the preliminary estimate released this week, labour cash earnings rose by 4.8% y/y in December, the largest increase since 1997. But while those strong gains boost household incomes, on their own they don’t …
7th February 2025
The largest increase in rice prices on record has provided a sizeable boost to inflation in recent months but we expect rice inflation to slow sharply this year. While our forecast is a 0.6%-pt decline in the contribution of rice to headline inflation by …
5th February 2025
