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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 …
Consumer spending to fall in Q1 The small fall in retail sales in December suggests that consumer spending only weakened slightly before the declaration of a state of emergency. However, it’s still consistent with our view that consumption will fall this …
28th January 2021
Slower virus spread not enough? Some commentators have suggested that winter surges in infections in “light-touch” countries such as Japan and Sweden are the final nail in the coffin for voluntary containment measures. Draconian restrictions on economic …
22nd January 2021
Second state of emergency far less damaging than previous one The small decline in January’s composite PMI is consistent with our view that the second state of emergency won’t throw the recovery off course . According to today’s flash estimate, the …
Inflation won’t stay negative for long While headline inflation dropped to an 11-year low in November, that was due to weaker energy and fresh food inflation. We expect inflation to recover over the coming months. Headline CPI fell from -0.9% y/y to -1.2% …
Despite the headwind from the third virus wave, the Bank of Japan revised up its growth forecasts for the next couple of fiscal years. And while Governor Kuroda didn’t provide much insight into what to expect from the upcoming review due in March, we …
21st January 2021
Trade to help keep growth positive in Q1 While export values failed to reach pre-virus levels again in December they should remain fairly strong at the start of the year, with net trade set to provide another boost to growth in Q1. The 2.0% annual rise in …
Our forecast for a 1.5% q/q fall in consumption in Q1 rests on the assumption that some businesses in virus hotspots will be forced to close in order to contain Japan’s most severe wave of the pandemic yet. But signs that new infections may already have …
20th January 2021
Consumers becoming more cautious Japan’s recovery was gathering momentum before surging infections began to take their toll. Machinery orders were 14.5% above Q3 levels across October and November, pointing to a sharp rebound in business investment last …
15th January 2021
No signs of stress in financial markets and policy already extremely loose Bank has already started to address side effects of aggressive easing Upcoming review still shrouded in mystery The Bank of Japan is unlikely to respond to the worsening virus …
14th January 2021
Business investment to recover this year The further rise in machinery orders in November followed a record monthly surge in October and suggests that business investment was rebounding strongly at the end of last year. We expect non-residential …
Conditions will get worse before they get better The sharp drop in the Economy Watchers Survey in December suggests that the third wave was weighing heavily on consumer sentiment even before the declaration of a state of emergency in Greater Tokyo last …
12th January 2021
Overview – Japan is battling a third virus wave and is a laggard in the global vaccine rollout race. Even so, we expect economic activity to return to pre-virus levels in the second half of this year as vaccines become widely available. Our forecast that …
11th January 2021
Nationwide state of emergency looms With Japan recording a record 7,000 virus cases on Thursday, the government yesterday declared a state of emergency in Tokyo and the three surrounding prefectures of Kanagawa, Saitama and Chiba that will last until 7 th …
8th January 2021
Wage growth will still turn positive later this year While wage growth weakened sharply in November it should recover strongly this year as overtime hours and bonuses recover and the labour market begins to tighten again. According to today’s preliminary …
7th January 2021
Third wave weighing on activity The recovery in consumer confidence flipped into reverse in December amid surging coronavirus infections. We think confidence will deteriorate further this year as tighter restrictions damage economic activity. That said, …
6th January 2021
It looks likely that a state of emergency will be declared in the Greater Tokyo Area over the coming weeks which could involve the closure of shops, schools and restaurants. While that will result in a fall in consumption, we still think that a rebound in …
4th January 2021
On its own, the draft budget for the fiscal year that starts in April points to a sharp tightening in fiscal policy. However, there are several reasons why the headline budget figures are overstating the severity of the upcoming fiscal drag. The draft …
21st December 2020
The Bank of Japan’s decision today to extend its emergency loan facility by six months didn’t come as a surprise. The announcement that the Bank would soon conduct an assessment of its easing strategy is more striking, but it appears unlikely to result in …
18th December 2020
Recovery will lose steam Survey data released this week suggest that economic activity continues to recover in the face of the most severe wave of coronavirus in Japan yet. The recovery in the Q4 Tankan beat consensus expectations, with the “all industry” …
Underlying inflation should soon start to recover While headline inflation fell sharply again in November due to weaker fresh food and energy inflation, we think it will recover early next year. Headline CPI fell from -0.4% y/y to -0.9% y/y last month …
PM Suga’s decision on Tuesday to halt the Go To Travel campaign for two weeks from 28 th December may put the recovery in services spending into temporary reverse. It comes after authorities in Tokyo, Osaka, and Nagoya this week extended requests for bars …
17th December 2020
PMI suggests third wave not derailing recovery The rebound in the composite PMI in December is consistent with our view that the third virus wave will slow the recovery but won’t derail it. The survey for the December flash PMI was conducted a week …
16th December 2020
Tailwind from net trade to fade While export values edged down again in November, they should rise above pre-virus levels. That said, due to the weakness in services exports, overall exports won’t return to pre-virus levels until the middle of next year. …
Recovery to surprise to the upside The sharp rebound in the Q4 Tankan supports our view that the economy will rebound relatively swiftly from the dislocation caused by the pandemic. And while firms’ capital spending plans point to weakness in business …
14th December 2020
The Nikkei 225 this week reached levels last seen in 1991, buoyed by a flurry of upbeat data releases. Revised figures show that GDP expanded by 5.3% q/q in Q3, a touch stronger than the preliminary estimate. The 17.1% m/m jump in machinery orders in …
11th December 2020
