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Supply shortages to continue to hamper manufacturers Today’s flash PMIs suggest that the onus is on the services sector to drive the recovery over the coming months. The fall in the manufacturing PMI suggests that that sector won’t rebound much further …
23rd June 2021
While the Bank of Japan kept its major policy settings unchanged today and will continue to do so for the foreseeable future, it extended the deadline for applications to its emergency lending facility from end-September 2021 to end-March 2022. And it …
18th June 2021
Round three coming to an end With almost all state of emergency declarations set to be lifted on Sunday, our forecast that GDP will only rise by 1.0% q/q next quarter is looking too pessimistic. The declarations will be lifted in nine of the ten …
Upwards pressure on inflation from reopening to be muted Headline inflation rose sharply in May due largely to a pickup in energy inflation. But while we expect headline inflation to rise further over the coming months, in contrast to many other large …
Japan’s now fast-moving vaccine rollout is set to gather more speed. PM Suga’s one-million-a-day goal could be hit on a 7-day average basis as soon as tomorrow. 18-to-64-year-olds have from today been able to fill vacant slots at large-scale vaccination …
16th June 2021
Export tailwind fading Despite the spectacular y/y growth rates in May, the rebound in exports is showing signs of slowing. Indeed, we doubt external demand will provide much of a tailwind to growth over the coming months as global consumer goods demand …
October-November vaccine target The revised Q1 GDP figures and April wage data released this week suggest the economy was a little more resilient than first appeared in the early part of this year. And the economy is looking increasingly well set for a …
11th June 2021
Application deadline for emergency lending facility to be extended to end of year Security holdings set to remain flat as shrinking TB holdings offset rising JGB holdings Bank may only purchase ETFs when stock market falls sharply At its June meeting we …
Wage growth to stay strong While the marked acceleration in wage growth in April was largely down to favourable base effects, we think wage growth will remain strong throughout this year as the labour market tightens and overtime hours recover further as …
8th June 2021
Consumption weak, but industry recovering The economic data released this week were mostly disappointing. For a start, retail sales volumes plunged by 4.8% m/m in April. That marked the largest drop since last year’s nationwide state of emergency and left …
4th June 2021
Output unlikely to recover in Q2 The sharp fall in retail sales and weaker than expected rise in industrial production in April suggests the economy was subdued even before states of emergency were declared, supporting our view that the economy won’t have …
31st May 2021
Could waning fourth wave give way to a fifth? Japan’s fourth wave of coronavirus has broken as cases have fallen sharply over the past couple of weeks. However, hospitalisations and deaths continue to touch record highs. (See Chart 1.) Indeed, PM Suga …
28th May 2021
Unemployment rate to edge back down The unemployment rate spiked back up in April after a surprise sharp fall in March. However, we think the jobless rate will fall back to around 2.6% over the coming months as employment resumes its recovery. Employment …
Green shoots for second half of the year Due to the economy faring worse than we had expected in Q1, we’ve revised down our 2021 GDP forecast to from +3.0% to +2.0% (see here ). Much of the 1.3% q/q drop in GDP in Q1 was down to a 1.4% q/q in private …
21st May 2021
Manufacturing to keep recovering, services to remain weak Today’s flash PMIs suggest that the manufacturing sector will continue to recover as supply shortages are starting to ease. However, the plunge in the services PMI suggests that overall economic …
Underlying inflation to rise further, but not much Inflation fell in April but that was almost entirely due to a plunge in mobile phone tariffs. Sifting through that distortion, headline inflation rose in April and will float higher over the coming …
Exports to rise at slower pace While export volumes edged higher in April, the rebound in exports is slowing and external demand is unlikely to provide much of a tailwind to growth over the coming months. Meanwhile, the muted rise in machinery orders in …
20th May 2021
Producer prices are rising the most in years, but this largely reflects global supply shortages that should abate as vaccines are rolled out. We expect consumer price inflation to average a muted 0.6% next year. The resilience of goods demand during the …
19th May 2021
Off the back of the weak Q1 GDP data, we now expect output to only rise 2% across 2021. The economy is unlikely to recover much in Q2 as cases are close to record highs and calls for a nationwide state of emergency growing. Moreover, only 4% of the …
Slow vaccination progress taking its toll The economy contracted yet again during the second state of emergency. With the medical situation still worsening during the current third state of emergency and the vaccine rollout too slow, it will take until …
18th May 2021
Logistics still holding back vaccine rollout While the vaccine campaign has picked up pace, the number of daily jabs administered averaged just 0.15 per 100 people in the week to Thursday – far short of the 0.75 required to meet the government’ target of …
14th May 2021
The recent strength in Japan’s wage data largely reflects a compositional shift, as more lower-paid workers have dropped out of the workforce over the past year. With vacancies still far below pre-virus levels and firms no longer reporting severe staff …
10th May 2021
Restrictions will probably be tightened further With daily cases not coming down at the nationwide level, the government is set to expand countermeasures across more regions of the country. That will weigh on activity which has held up well in Q2 so far. …
7th May 2021
Wage growth has further to rise Wage growth turned positive for the first time since the pandemic began in March and we think it will accelerate further next month due to favourable base effects. Further ahead wage growth should remain strong due to the …
Q1 holding up well, but Q2 could yet be weaker At first glance, the 2.2% m/m rebound in industrial production in March suggests that the chip shortages that have been plaguing Japan’s manufacturing sector in recent months are easing. With industrial …
30th April 2021
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 …
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
