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Economy held up in Q1, but Q2 may yet be weaker The rebound in industrial production and the sharp drop in the unemployment rate in March are consistent with our view that the economy held up much better than most had anticipated during the second state …
30th April 2021
The pandemic has lifted the ratio of corporate debt to GDP to the highest level since the late-1990s and the Bank of Japan now fears that defaults could rise sharply in struggling sectors. However, there are several reasons why this is unlikely to saddle …
29th April 2021
Consumer spending to flatline in Q2 The further rise in retail sales in March suggests that consumer spending was relatively strong in between the third and fourth waves of coronavirus. The strength in goods consumption in February and March won’t have …
28th April 2021
The Bank of Japan kept policy settings unchanged today as widely anticipated. And by predicting inflation well below its 2% target all the way to FY2023, the Bank signalled that Governor Kuroda won’t start to tighten monetary policy before his current …
27th April 2021
Round Three With the government set to this evening declare a state of emergency for the prefectures of Tokyo, Osaka, Hyogo and Kyoto, Japan’s economic recovery is likely to have stalled across the first half of 2021 (see here ). The emergency measures …
23rd April 2021
Inflation has further to rise Inflation continued to rebound in March mainly due to a further pickup in energy inflation. We think headline inflation will rise further and break past the lofty heights of +1% y/y later in the year. Headline CPI rose from …
Tokyo, Hyogo and Kyoto are soon expected to join Osaka in asking the central government to declare a third state of emergency. While together those four prefectures only generate a third of national output, the experience during the second state of …
21st April 2021
Tolerance band around 10-year yield target unlikely to be widened any further Bank has started to reduce its JGB purchases ETF purchases will be resumed during periods of market turmoil After tweaking a range of policy measures in March, the Bank of Japan …
20th April 2021
The fourth virus wave has so far been largely concentrated in Osaka and a state of emergency declaration in that prefecture alone would not prevent national output from rebounding in Q2. However, as the surge in cases in Osaka is driven by more contagious …
19th April 2021
Export tailwind fading While export values rose in March, the rebound in exports slowed significantly across Q1 and external demand is unlikely to provide much of a tailwind to growth this year. The 16.1% annual rise in export values in March was stronger …
More state of emergency declarations looming The continued surge in daily infections means it’s now increasingly likely that some businesses will be asked to temporary close to curb the virus spread. We expect a state of emergency to soon be declared for …
16th April 2021
Business investment will resume recovery soon The sharp fall in machinery orders in February poses downside risks to our view that business investment continued to rise last quarter. However, the recovery in private investment should still gather pace …
14th April 2021
Fourth wave could force draconian measures The Bank of Japan’s broad measure of consumption released this week suggests that the hit to consumer spending from the third wave was harder than first appeared. While the measure rose 1.2% m/m in February, …
9th April 2021
Overview – Japan’s vaccine rollout has got off to a crawling start and a fourth wave of coronavirus infections is forming. Even so, we expect vaccines to allow domestic spending to rebound fully in the second half of this year. Our forecast that GDP will …
8th April 2021
Strong start to Q2 The 2.8% m/m rise in retail sales volumes in February to their highest level since September 2019 supports our view that the economic damage from the second round of emergency declarations was far more limited than that from the …
1st April 2021
Recovery to gather pace again The further strong rebound in the Q1 Tankan supports our view that the economy’s recovery from the pandemic will gather pace again soon. And firms’ upbeat capital spending plans for the upcoming fiscal year bolster our view …
Manufacturing output will resume its recovery The fall in industrial production in February came off the back of a strong January and shouldn’t prevent manufacturing output rising across Q1. And firms’ production forecasts for April point to a surge in …
31st March 2021
Economy may not have contracted in Q1 The strong rise in retail sales in February to their highest level since September 2019 supports our view that the economy just about avoided a contraction in Q1. And while the unemployment rate was unchanged in …
30th March 2021
Shifting our focus from Nikkei to TOPIX Despite upward revisions to our long-term US Treasury yield forecasts this week, we’ve generally left our upbeat forecasts for DM equities unchanged (see here ). And we still expect the outperformance of Japanese …
26th March 2021
Recovery from state of emergency slow going The slight rise in the composite PMI in March was a little disappointing given that most state of emergency declarations had been lifted and suggests that the economy may not be entering Q2 with much momentum. …
24th March 2021
The Bank of Japan’s policy review today contained various nudges to policy levers but ultimately marked neither a tightening nor an easing of policy. Governor Kuroda was keen to emphasise in the press conference that widening the target band for 10-year …
19th March 2021
Inoculations will gather more pace Many initial concerns over Japan’s vaccine rollout centred on supply constraints. Japan has been entirely reliant on imports of the Pfizer vaccine in the early stages of its rollout. However, supply hasn’t been an issue …
Headline inflation could briefly hit 1% Headline inflation recovered further in February due mainly to a pickup in energy inflation and should continue to rebound over the coming months as energy becomes a significant tailwind. Headline CPI rose from …
With mobility rebounding and the state of emergency finally being lifted across all prefectures this weekend, economic activity should enter Q2 with some momentum. While the second state of emergency has been less restrictive and more targeted than the …
18th March 2021
Net trade starting to drag on growth While some of the weakness in exports last month was due to the later timing of the lunar new year, export growth may have been outpaced by import growth this quarter. That suggests that net trade may have been a small …
17th March 2021
Business investment to rebound further The fall in machinery orders in January is not particularly surprising given that they had surged significantly above pre-virus levels in December. We still expect business investment to have risen a little further …
15th March 2021
More resilient to external shocks since Fukushima Yesterday marked 10 years since the meltdown at Fukushima Daiichi nuclear power station. The triple blow from the earthquake, tsunami and nuclear meltdown on 11 th March 2011 caused a devastating loss of …
12th March 2021
Board acknowledges that bond market functioning has deteriorated But policymakers may be worried about impact of higher yields on activity Tolerance band to remain unchanged until vaccines allow activity to rebound fully The pendulum seems to have swung …
11th March 2021
Japan’s manufacturers are not suffering from the severe supply shortages that are plaguing firms in other advanced economies. This reflects lessons learned from the Great East Japan Earthquake and a low reliance on imported components. Indeed, the surge …
10th March 2021
GDP may still avoid a contraction in Q1 While the downward revision to Q4 GDP and the sharp fall in “core” household spending in January suggest that the economy faired a little worse than initially reported over the winter, we continue to expect the …
9th March 2021
Economic activity bouncing back fast from third wave The sharp rebound in the Economy Watchers Survey in February suggests economic activity is ending the quarter with some momentum. That supports our non-consensus view that the state of emergency won’t …
8th March 2021
Tokyo caution won’t prevent strong end to Q1 The 2.9% m/m drop in the consumption activity index (CAI) last month was a bit larger than we had anticipated, but revised data show that spending reached a fresh virus-era-high in December despite soaring …
5th March 2021
The fiscal support that Japan’s government provided during the pandemic wasn’t as large as headline figures suggest. Accordingly, the withdrawal of stimulus will be a smaller headwind to the economy than most expect, which is one reason we believe that …
2nd March 2021
Unemployment rate will fall further The unemployment rate fell in January despite the state of emergency, and it should fall further over the course of this year as employment rebounds in line with the economic recovery. Meanwhile, capital spending data …
10-year yields reaching highest level since 2016 The 10-year JGB yield rose to 0.18% today, the highest it has been since the launch of negative interest rates in January 2016. (See Chart 1.) One explanation is that the Bank of Japan is widely expected to …
26th February 2021
Economy may avoid contraction this quarter The strong rise in industrial production and only tiny fall in retail sales in January suggest that the economy may not contract this quarter. And with the state of emergency set to end everywhere next Sunday, …
The Bank of Japan is likely to widen the tolerance band around its 10-year yield target next month. The last time this happened, many saw it – wrongly in our view – as a form of policy tightening. It will be driven more by a desire to steepen the yield …
23rd February 2021
The strong rise in output in Q4 2020 to just 1.2% below Q4 2019 levels bolsters our view that Japan’s economy will be back to the level it reached before the tax hike and close to its pre-virus path by mid-2022. (See Chart 1.) Daily virus cases have …
22nd February 2021
The 3.0% q/q jump in GDP in Q4 was stronger than most had anticipated. And while it still left output 2.9% below the peak reached ahead of 2019’s sales tax hike, other economic data released this week are consistent with our view that the economy will …
19th February 2021
Impact of state of emergency starting to fade The rebound in the composite PMI in February supports our view that the economy is coping with the second state of emergency better than most had anticipated . According to the flash estimate, the …
Inflation will continue to recover Headline inflation recovered substantially in January due to the removal of the artificial drag from the Go To Travel campaign, and we think it will rebound further over the coming months. Headline CPI rose from -1.2% …
Exports won’t rise much further While some of the rise in exports in January was likely due to the timing of the lunar new year, they should have continued to rise faster than imports across this quarter, with net trade likely to provide a small boost to …
17th February 2021
Recovery to keep surprising to the upside The strong rise in GDP in Q4 left output just 0.5% below pre-virus levels. And while most economists expect a renewed contraction this quarter due to the second state of emergency, we think that output will be …
15th February 2021
Light-touch restrictions beginning to relax We flagged last week that the state of emergency currently covering 10 prefectures was likely to be lifted before its scheduled end on 7 th March. Indeed, the government is considering lifting the declaration …
11th February 2021
December’s severe weakness a one-off The collapse in wage growth in December was entirely due to a fall in bonus payments. Wage growth will have bounced back in January and should soon turn positive as the labour market tightens and corporate profits …
9th February 2021
Third wave proving far less damaging than the first The resilience of the Economy Watchers Survey in January suggests that the third wave is causing far less economic damage than the first did. That supports our non-consensus view that the economy will …
8th February 2021
SoE extension not a major worry The government this week extended the state of emergency by a month for ten of Japan’s eleven prefectures. Tochigi was the only prefecture that was excluded as it met all six of the metrics required to lower the status of …
5th February 2021
While Japan’s vaccine rollout won’t begin until late February, we are assuming that inoculations proceed rapidly enough for most of the vulnerable to be protected by the middle of the year with the result that the economy returns to pre-virus levels in Q3 …
2nd February 2021
Higher consumption forecasts The modest 0.3% m/m fall in retail sales volumes in December suggests that consumer spending had built up some immunity to surging coronavirus infections. While we assume that overall household spending performed a little …
29th January 2021
Economy should avoid contraction in Q1 While industrial production and capital goods shipments fell in December, firms’ ultra-upbeat production forecasts for January support our view that GDP will rise this quarter. Meanwhile, the unemployment rate was …
