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The overnight strikes by Israel on Iran mark a major escalation in the conflict in the region and, with the oil market tighter than it was a few months ago, the risks to oil prices look more balanced than we’d previously thought (rather than skewed to the …
13th June 2025
In this Update, we answer several key questions about how the US Court of International Trade (CIT) tariff ruling might affect the US and other economies. The outlook may now rest on the decision of the Republican-stacked Supreme Court. The upside risks …
29th May 2025
The bulk of the evidence suggests that the recent sharp slowdown in regular earnings growth is a statistical anomaly rather than genuine. With this year’s spring wage negotiations resulting in the fastest pay hikes in decades, we still expect the Bank of …
27th May 2025
The recent climbdown has left the effective US tariff rate on the rest of the world at around 15% as opposed to the 27% which was threatened at the height of this year’s trade war. While this is still the highest since the 1930s, it is unlikely to cause a …
13th May 2025
Global Trade Stress Monitor …
The US and China have each suspended for 90 days all but 10% of their Liberation Day tariffs and cancelled other retaliatory tariffs. This is a substantial de-escalation. However, the US still has much higher tariffs on China than on other countries and …
12th May 2025
In current circumstances it would take a large strengthening of the yen to push inflation below the Bank of Japan’s 2% target. And with profit margins close to record highs, the hit from a stronger yen to corporate profitability probably won’t result in a …
6th May 2025
The Bank of Japan revised down its growth forecasts and sounded more dovish when it left policy settings unchanged today. However, we believe that the Bank has become far too downbeat about the outlook for inflation and we’re sticking to our forecast of …
1st May 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
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
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
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 …
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 …
28th March 2025
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
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
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 …
14th 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 …
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
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
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
The experience from other advanced economies is that there’s no hard and fast rule for how long it will take for the labour market to loosen in response to rate hikes by the Bank of Japan. But with the real policy stance set to remain loose, we expect the …
27th January 2025
The Bank of Japan signalled further tightening when it lifted its policy rate to 0.5% today. With inflation set to remain above its 2% target this year, we expect the policy rate to reach 1.25% next year. The Bank’s decision to lift interest rates to 0.5% …
24th January 2025
We aren’t overly worried about the impact of higher bond yields on Japan’s public finances because rising interest rates are a direct consequence of higher inflation. With the effective interest rate on public debt set to rise only slowly, the net impact …
21st January 2025
The Cold War was defined by geopolitical blocs – the Soviet or Eastern bloc against the Western bloc. Geopolitics retreated with the collapse of the Soviet Union. The period from the early-1990s to the early-2010s was instead an era of globalisation: most …
7th January 2025
The Bank of Japan's decision to leave rates on hold for a third consecutive meeting was not a great surprise. But in the post-meeting press conference Governor Ueda sounded in no hurry at all to resume the tightening cycle and there’s now a good chance …
19th December 2024
We now think the 10-year JGB yield will rise further, the yen will make more ground against the US dollar, and Japan’s equities will struggle to make much headway (in yen terms). Inflation in Japan looked, only a couple of months ago, to be firmly on the …
2nd December 2024
We held an online session on US import tariffs on 26th November. (See a recording here ). In this Update we answer the questions we were most asked. What are Trump’s motives for threatening tariffs and will he follow through? Trump has spoken about using …
29th November 2024
President-elect Donald Trump’s first threatened tariffs since the election are designed to extract concessions on drug trafficking and illegal border crossings, which means it may be possible for the countries targeted – Canada, Mexico and China – to head …
26th November 2024
Our base case is that the LDP/Komeito coalition will be able to push through major pieces of legislation, including a supplementary budget by year-end, with only minor concessions to the Democratic Party for the People. If the DPP insists on its radical …
13th November 2024
BoJ Governor Ueda sounded more optimistic today and we’re sticking to our forecast of another rate hike at the Bank’s next meeting in December, though we don’t expect further tightening in 2025 . It came as no surprise that the Bank left its policy rate …
31st October 2024
We argued last year that the relative strength of Japan’s stock market mostly reflected the weak yen rather than a fundamental transformation of its corporate sector. Developments since then suggest that we were right and with the yen set, in our view, to …
23rd October 2024
Despite the surge in foreign visitors, Japan’s tourism industry is still struggling as domestic tourists have slashed holiday spending in the face of plunging real incomes. One of the sectors where the pandemic is still having a visible impact on Japan’s …
9th October 2024
The government tried to prevent the Bank of Japan from hiking interest rates in 2000 but that attempt was unsuccessful and the government has respected the Bank’s independence ever since. Renewed efforts to bring the BoJ to heel look unlikely now given …
24th September 2024
The Bank of Japan today signalled that it’s in no rush to tighten monetary policy any further and we’re pushing back our forecast for a final rate hike to 0.5% from October to December. As widely anticipated, the Bank kept its policy rate unchanged at …
20th September 2024
The persistent strength in producer price inflation probably still mostly reflects the lagged influence of the surge in import costs rather than any pick-up in wage growth. If the yen keeps strengthening over the next couple of years, inflation will fall …
27th August 2024
Prime Minister Kishida’s resignation is hardly a surprise. At this stage, it’s very difficult to predict who will succeed him and the ruling LDP will probably remain in power for the foreseeable future. The upshot is that Kishida’s withdrawal doesn’t have …
14th August 2024
Even though it’s difficult to identify what could have broken as a result of the recent rapid market moves, a stronger yen is a bigger threat to the health of Japan’s financial institutions than falling stock prices. The Topix has reversed half of the …
7th August 2024
Japan’s government has intervened in the FX markets to weaken the yen far more often than to strengthen it. But FX interventions have become very rare over the past two decades and our sense is that the government is welcoming a stronger exchange rate in …
6th August 2024
The Bank of Japan outlined a plan for reducing its bond purchases and hiked its policy rate by 20bp today. We think it will follow up with another 20bp hike at its October meeting . Only one-third of analysts polled by Reuters, ourselves included, had …
31st July 2024
In detailed analysis last year, we concluded that equilibrium nominal interest rates would settle at between 3% and 4% in advanced economies in the next ten years. We maintain that opinion and in fact some of the forces boosting equilibrium rates seem to …
30th July 2024
Japan’s intervention in support of the yen is not enough in itself to generate a sustained rebound in the yen. But with the FOMC (finally) nearing its first rate cut while the BoJ continues to tighten its policy stance gradually, we think the tide is now …
17th July 2024
The continued weakness of the renminbi and the yen against the US dollar despite the narrowing of interest rate differentials via-a-vis the US is something of a conundrum, but our sense remains that both currencies will rebound against the dollar later …
11th July 2024
While there are tentative signs that Japan’s economy is becoming more dynamic, this has yet to produce significant improvements in aggregate productivity. We still think that a more meaningful pick-up in productivity growth will only happen towards the …
10th July 2024
The Bank of Japan disappointed markets today by announcing that it will only present a detailed plan for reducing its bond purchases at its July meeting. We think it will also deliver a final policy rate hike then . Today’s BoJ meeting was a damp squib . …
14th June 2024
While the official job openings figures have fallen since late-2022, the bulk of the evidence suggests that firms are facing increasingly severe job shortages. One explanation for the fall in job vacancies could be a change in firms’ recruitment …
12th June 2024
Rising car prices explain why US import prices from Japan haven’t fallen despite the sharp weakening of the yen. While growth in car prices has slowed as supply shortages have unwound, this hasn’t boosted export volumes so far and we think that the weak …
10th June 2024
