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If Russia decided to end all exports of natural gas to Japan, we suspect that Japan’s GDP would fall by around 0.5%. However, the hit could be larger as there is now less scope to reduce energy usage than after the Great East Japan Earthquake and a bigger …
4th July 2022
Industrial output slumping The activity data released this week suggest that output won’t rebound as rapidly as we had been anticipating and we’re lowering our estimate of Q2 GDP growth from 1.5% q/q to 0.5%. The 0.6% m/m rise in retail sales values was …
1st July 2022
Tankan signals soaring capital spending Today’s Tankan survey suggests that while the services sector is benefitting from the easing of virus restrictions, the outlook for the manufacturing sector is worsening. Meanwhile, the labour market didn’t tighten …
Recovery disappointing yet again The plunge in industrial output in May suggests that Japan’s recovery is disappointing yet again. The upshot is that it will take until the second half of the year for GDP to surpass its pre-virus level . The 7.2% m/m …
30th June 2022
Consumer spending will disappoint yet again The disappointing rise in retail sales in May poses downside risks to our upbeat forecasts for consumption growth in Q2 . The 0.6% m/m rise in retail sales values in May marked the third consecutive rise but …
29th June 2022
Election puts focus on inflation Campaigning for the 10 th July Upper House election has formally begun. There is little question that the LDP will win – the only question is by how much. The scale of victory could have a bearing on the outlook for policy …
24th June 2022
Inflation to remain above BoJ target until early-2023 While inflation didn’t rise any further in May, it will remain above the BoJ’s 2% target until early-2023, while underlying inflation will approach 2%. However, the Bank won’t respond with tighter …
Supply shortages still biting but consumption bouncing back The PMIs suggest that supply shortages are still holding back manufacturing output and adding to price pressures. On a more upbeat note, the surveys also point to a strong pick-up in consumption …
23rd June 2022
While inflation is still far lower in Japan than in most places, rapid increases in the prices of some everyday purchases have made it a political focus. A Nikkei poll following the Bank of Japan’s meeting at the end of last week found that nearly half of …
21st June 2022
Yen to hit 140 even if yield ceiling raised While Bank of Japan Governor Kuroda insisted today that Yield Curve Control has no limits, defending the 0.25% ceiling on 10-year yields with the kind of heavy JGB purchases seen this week is unsustainable over …
17th June 2022
The Bank of Japan gave no ground at all to bond traders today as it left all its major policy settings unchanged. Governor Kuroda was resolute in claiming that Yield Curve Control has no limits in his press conference. But the likelihood is that defending …
Exports to stay soft in near term Export volumes recovered a bit in May, but they are likely to stay weak in the near term until supply shortages dissipate and allow exporting automakers to ramp up production again. The 15.8% annual rise in exports in May …
16th June 2022
The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the …
13th June 2022
Overtime hours surpass pre-virus levels In a dovish speech on Monday, Bank of Japan Governor Kuroda argued that the main reason why inflation in Japan remains much lower than elsewhere is the rigidity of services prices. In turn, he argued, that reflects …
10th June 2022
Inflation to stay above 2% until early next year But BoJ needs broader price increases sustained by stronger wage growth Yield Curve Control looking a lot more secure, but may still be tweaked While Japanese inflation will stay just above the Bank of …
A falling fertility rate and declining employment among retirement age workers pose downside risks to our long-term forecasts for Japan’s labour force and GDP growth. However, with the female participation rate still climbing from record highs and job …
7th June 2022
Wage growth won’t reach the BoJ’s threshold anytime soon While regular wage growth is approaching its pre-pandemic peak, it won’t reach the 3% the Bank of Japan is aiming for anytime soon . More positively though, with overtime working hours reaching …
Recovery in services spending gaining momentum The 1.3% m/m fall in industrial production in April is a clear sign that supply shortages remain a major headwind for exposed sectors such as carmaking. It left manufacturing output around 4% down on both its …
3rd June 2022
Q2 rebound could disappoint While employment recovered sharply in April and should soon reclaim its pre-pandemic level, the weakness in both goods production and goods consumption last month suggests that the economy’s Q2 rebound could be more muted than …
31st May 2022
Tax reform unlikely to change behaviour The government’s planned mix of tax hikes and tax breaks to promote corporate investment and discourage saving is unlikely to have the teeth required to significantly alter corporate behaviour. Media reports suggest …
27th May 2022
Industrial activity still held back by supply shortages While the flash manufacturing PMI was little changed in May, the details suggest that supply shortages worsened yet again, weighing on output and lifting prices. According to the flash estimate …
24th May 2022
The Bank of Japan’s attempt to relieve pressure on the Yield Curve Control framework by offering to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at yields of 0.25% for as long as necessary appears to have done the trick so far. …
23rd May 2022
Real incomes not plunging as sharply as elsewhere Japan’s GDP shrank slightly in Q1 as consumer spending was kept in check by the Omicron outbreak. In contrast to most other advanced economies, Japan’s GDP has therefore yet to surpass its pre-virus level. …
20th May 2022
Above-target inflation won’t prompt policy tightening Inflation rose above the Bank of Japan's 2% inflation target for the first time since 2008 and we expect underlying inflation to approach 2% later this year, but this won't prompt the Bank to tighten …
With Japan’s terms of trade set to improve only modestly and interest rates differentials moving further against the yen, we expect the exchange rate to fall to 140 against the dollar by year-end. But this currency weakness will provide only a small boost …
19th May 2022
Net trade to boost growth this quarter Export volumes fell in April, and they are likely to remain subdued over the coming months until supply shortages dissipate and allow exporters to make up for lost ground. The 12.5% annual rise in exports in April …
We don’t expect the Bank of Japan to tighten monetary policy meaningfully but, with inflation about to breach 2%, what if we are wrong? The direct impact of higher interest rates on the corporate sector would be manageable, but a stronger yen would weigh …
18th May 2022
Consumer caution to soften reopening rebound Japan’s economy only contracted slightly in Q1 as consumption held up well despite prolonged restrictions during the Omicron wave. But while the economy will bounce back this quarter, we think Japan’s delayed …
Golden Week encouraging The strong rebound in mobility over Golden Week suggests that virus fears are waning for many consumers. After stay-at-home spring holiday periods in 2020 and 2021, last week finally saw a seasonal spike in mobility. (See Chart 1.) …
13th May 2022
The hit to household incomes from higher inflation will be much smaller in Japan than elsewhere and consumers have plenty of pandemic forced savings to tap into to sustain spending. But we nonetheless expect the rebound in consumption to disappoint over …
11th May 2022
Wage growth to touch 2% Nominal wage growth stayed at 1.2% in March and we think it could touch 2% over the coming months as overtime and bonus payments get back to their pre-virus levels. But with base pay growth still weak, we think overall wage growth …
9th May 2022
High inflation print may spook consumers The rise in headline inflation to 2.5% in the Tokyo measure for April released today (see Chart 1) will be replicated in the nationwide data in two weeks’ time, lifting inflation above the 2% target for the first …
6th May 2022
The pass-through of higher import costs resulting from the weaker yen and soaring energy prices will lift underlying inflation close to the BoJ’s 2% target by the end of the year. However, with wage growth unlikely to pick up in response, inflation will …
4th May 2022
BoJ ups the ante once again The Bank of Japan remained under pressure to defend its 10-year yield target this week and conducted fixed rate auctions offering to buy an unlimited amount of bonds every day. The amounts purchased in the auctions on Tuesday …
29th April 2022
The Bank of Japan resisted the temptation to widen its tolerance band for 10-year JGB yields today, but it did outline that it will from now on conduct unlimited fixed rate auctions every business day until yields drop back comfortably below its ceiling …
28th April 2022
Activity to recover strongly across Q2 The strong rebound in retail sales in March suggests that the post-Omicron recovery got off to a good start. Meanwhile, industrial production edged up last month, but it will continue to be held back by supply …
With US Treasury yields set to keep rising over the coming year, it will become even more difficult for the Bank of Japan to defend its target for 10-year JGB yields. While we don’t expect the Bank to abandon Yield Curve Control altogether, we think it …
26th April 2022
Employment to continue to rebound Employment bounced back in March and it should continue to recover over the coming months as long as the reopening doesn’t go into reverse again. That should push the unemployment rate back down to its pre-virus level of …
We think the yen will drop even further as policy divergence widens. We now forecast USD/JPY to reach 140 by the end of this year, before dropping back as the Fed takes its foot off the gas in 2023. While it has stabilised over the past couple of days, …
22nd April 2022
BoJ intervenes again to cap 10-year yields With 10-year yields again at the ceiling of the BoJ’s 0±25bp target band, the Bank launched another fixed rate auction on Wednesday. Then, on Thursday, it announced consecutive fixed rate auctions for a total of …
All set for 2% Inflation picked up in March due to a further rise in utilities inflation and a jump in food inflation. And headline inflation will hit 2% in the April data released in just under a month’s time as most of the drag from mobile phone tariffs …
With the yen falling to a 20-year low against the dollar, talk of foreign exchange market intervention is growing. While we think the bar for any intervention is high , this Update answers some key questions. 1. Who decides whether to intervene? Bank of …
21st April 2022
Inflation will hit the Bank’s 2% target this month But BoJ won’t tighten due to stuttering recovery & weak domestic price pressures And Governor Kuroda won’t sacrifice Yield Curve Control for a stronger yen Despite coming under significant pressure in …
Shortages still hampering exports The export data were disappointing again in March, though exports are set for a strong rebound once supply shortages ease in hard-hit sectors such as automobiles. The 14.7% annual rise in export values in March was weaker …
20th April 2022
With all domestic restrictions gone and the booster rollout further severing the link between cases and deaths, the conditions for a reopening bounce are in place. Moreover, consumers have ample room to splash the cash. The household savings rate remained …
19th April 2022
Ban on Russian coal won’t lift energy prices Prime Minister Kishida’s decision last Friday to follow the EU in banning imports of Russian coal is unlikely to put much additional upwards pressure on Japanese energy prices. To be sure, Japan is the world’s …
14th April 2022
Business investment to bounce back from Omicron The sharp fall in machinery orders in February supports our view that business investment fell further in Q1 after a disappointing 2021. However, survey evidence and strong corporate profits point to firms …
13th April 2022
Yen could weaken further While part of the recent sharp weakening in the yen can be attributed to the recent deterioration in Japan’s terms of trade (see here ), we don’t think a rebound in the current account surplus will cause the yen to strengthen. …
8th April 2022
The yen isn’t obviously undervalued so it isn’t clear whether attempts to strengthen it would work. Most importantly, the Bank of Japan remains convinced that a weaker yen is beneficial for Japan’s economy. The yen has weakened by around 7% against the …
6th April 2022
Wage growth to accelerate further Japanese wage growth strengthened in February and we think it will accelerate further over the coming months as overtime and bonus pay continue to recover. However, as the post-Omicron rebound wears off wage growth should …
5th April 2022
