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Huge boost to GDP growth from net trade in Q3 Exports continued to recover in August while import volumes fell. Indeed, we expect net trade to provide a sizeable boost to growth this quarter following a huge drag in Q2. The 14.8% annual fall in export …
16th September 2020
Japan’s incoming Prime Minister Suga Yoshihide has said he will “inherit Abenomics” and has been keen to emphasise that not much will change. As such, a major shift in economic policy is not on the cards. However, there are some apparent differences in …
15th September 2020
Outlook for business investment not great The second estimate of Q2 GDP released this week was broadly in line with the preliminary estimate. However, the Cabinet Office now estimates that business investment plunged by 4.7% q/q instead of the previous …
11th September 2020
Business investment hasn’t bottomed out yet While machinery orders rose in July we still expect non-residential investment to weaken further in Q3. And with business sentiment set to remain weak for the forseeable future, any rebound in business …
10th September 2020
Bank will stay the course at upcoming meeting Likely future PM Suga has indicated that he sees scope for interest rate cuts But recent comments suggest he won’t interfere in monetary policy decisions The Bank of Japan will leave policy settings unchanged …
9th September 2020
Rebound in household incomes to continue Wage growth improved in July and household incomes are likely to rebound further as more workers who lost their jobs during the state of emergency find employment again. Meanwhile, the second estimate of Q2 GDP …
8th September 2020
Suga favouring more monetary easing Chief Cabinet Secretary Yoshihide Suga has secured the backing of a majority of LDP lawmakers and is widely expected to win the party’s leadership election on 14 th September. That means he would become Japan’s next …
4th September 2020
Japan will very soon have a new Prime Minister. Close Abe aide Suga Yoshihide is the current front runner in the LDP leadership contest and would likely keep policy firmly on the course set by Mr Abe. But even if Abe critic Ishiba Shigeru were to win, we …
1st September 2020
Unemployment rate to hit 4% The unemployment rate edged higher in July, and we expect it to rise further over the coming months despite a continued recovery in economic activity. Meanwhile, the further fall in the number of furloughed workers supports our …
The Bank of Japan’s recent purchases of Treasury Bills have yet to feed through into the money supply as the government’s deposit account at the Bank has ballooned. That will provide a further boost to the money holdings of households and firms but we …
31st August 2020
Activity will recover further in second half of year While retail sales fell in July, consumer spending should continue to recover over the coming months. Meanwhile, industrial production rose sharply in July and should also rebound further. The 3.3% m/m …
LDP to remain in charge After racking up a record number of consecutive days as Prime Minister on Monday, Mr Abe announced today that he will step down due to health concerns. A chronic bowel condition already forced Abe to cut short his first term as PM …
28th August 2020
The slump in underlying inflation in Tokyo in August was mostly driven by subsidies to domestic travel as part of the Go To travel campaign. But even when we strip out the impact of those subsidies, underlying inflation has now started to slow and we …
Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
27th August 2020
Net trade to provide large boost to Q3 GDP The 7.8% q/q plunge in GDP in Q2 wiped out all the gains since PM Abe returned to power in 2012, but timelier data suggest that a strong rebound is now underway. The 7.4% m/m rise in export volumes in July was …
21st August 2020
Economy to pick up again over the coming months The stagnation in Japan’s composite PMI in August is consistent with our view that the second virus wave has brought the recovery to a standstill but won’t cause a renewed downturn . According to today’s …
Underlying inflation to turn negative Inflation excluding fresh food and energy was just over zero in July and we think it won’t be long before it turns negative. We expect sluggish demand to overwhelm the impact of social distancing measures. The pick-up …
Net trade to boost growth in Q3 The July trade data are consistent with our view that net exports will provide a large boost to Q3 GDP growth. However, the fall in machinery orders to a seven-year low bodes ill for business investment The 19.2% annual …
19th August 2020
The money supply has recently been growing at the fastest rate in at least two decades, boosted by government giveaways and generous lending to non-financial firms. However, the expansion in the monetary aggregates falls short of the rates seen in other …
18th August 2020
Japan to recover faster than most Despite its less severe restrictions on activity, Japan’s economy was hit just as hard by the virus in Q2 as many other large economies. However, we think GDP will converge to its pre-virus path rather quickly. According …
17th August 2020
Is the second wave breaking? While it’s too early to jump to any firm conclusions, the slowing spread of the virus over the past week lends support to our view that the economy will be able to rebound strongly in the second half of the year. But with the …
14th August 2020
Despite the reintroduction of states of emergency in some prefectures, and renewed calls for jishuku (“self-restraint”) in many others, the steps taken by local authorities to curb the “second wave” of coronavirus cases have so far been tentative and …
13th August 2020
More containment measures, but still a light touch Over the past few days, three of Japan’s 47 prefectures have reintroduced states of emergency to curb the spread of the coronavirus. And with some other local authorities also rolling out fresh …
7th August 2020
Household incomes should continue to rebound Wage growth improved a little in June and household incomes are rebounding now that most furloughed workers are back in work. Meanwhile, the surge “core” household spending in June supports our view that …
The second virus wave that is hitting Japan supports our view that Japan’s economy will contract more sharply this year than most anticipate. However, a renewed state of emergency would probably not be as economically damaging as the one declared in April …
3rd August 2020
Unemployment will rise further The sharp drop in the number of furloughed workers and the rise in industrial production in June bodes well for the recovery in economic activity in the second half of the year. But while the unemployment rate edged down in …
31st July 2020
Activity holding up despite surging cases The 13.1% m/m jump in retail sales in June points to a strong rebound in consumption even if spending on services recovered less rapidly. And while Japan is in the midst of a “second wave” of coronavirus cases, …
30th July 2020
Consumer spending should continue to recover The surge in retail sales in June suggests that consumer spending will rebound across Q3 even if some restrictions on activity are reimposed to curb the renewed spread of the virus. The 13.1% m/m rise in retail …
Economy trumping virus containment in Osaka With cases now rising fast across most major Japanese cities and hitting a record high at the national level this week, many local governments are now facing a choice between containing the virus and keeping the …
24th July 2020
We do not expect the coronavirus crisis to undermine Japan’s long-term prospects. Capital accumulation will slow but there shouldn’t be a big impact on the supply of labour. And given that the response to the pandemic may end up lifting productivity, we …
23rd July 2020
Recovery set to be slow going Both the manufacturing and the services PMI only improved a little bit in July which suggests that the recovery from the pandemic will be more protracted than elsewhere. The flash estimate of the manufacturing PMI edged up …
22nd July 2020
With coronavirus cases hitting record-highs in Tokyo and rising in other urban areas, the government announced on Monday that it plans to give local governments greater power to request business closures. That could include penalties for firms that ignore …
21st July 2020
Underlying inflation to weaken much further While headline inflation was unchanged for the third-straight month in June, we expect it to fall much further over the medium-term. We think inflation will turn consistently negative in the second half of the …
Trade to rebound soon Export volumes were little changed in June but they should rebound soon as many of Japan’s trading partners are on the mend. By contrast, import volumes never fell much despite the slump in domestic demand and we think they will …
20th July 2020
Governor Koike sounds the alarm This week’s raising of the alert level in Tokyo to red – its highest level – has no major automatic consequences. But it brings the city government to the brink of once again asking some businesses to close. New infections …
17th July 2020
The Bank of Japan kept policy settings unchanged today as widely anticipated and we think it won’t announce major new measures over the coming months . The Bank’s decision to keep both its short-term policy rate as well as its target for 10-year …
15th July 2020
Overview – Japan’s economic recovery has been threatened by a new wave of COVID-19 cases but the government probably won’t respond with drastic restrictions on activity. Output should therefore recover over the coming months, but social distancing …
9th July 2020
Renewed outbreak in Tokyo manageable for now New confirmed coronavirus cases in Tokyo hit a record high of 224 today, exceeding the peak of 206 during the state of the emergency in April. While authorities in Australia and the US are responding to renewed …
Business investment to fall sharply despite slight rise in orders The slight rise in machinery orders in May suggests that non-residential investment may have slumped a little less than we were anticipating in Q2. However, with business sentiment …
Lending schemes still well below ceilings and appetite for bank lending has declined Strains in foreign currency funding markets subsiding Concerns about financial stability will prevent rate cuts The Bank of Japan is likely to leave policy settings …
8th July 2020
Wage growth to weaken further even as household incomes rebound Wage growth weakened further in May, but we think household incomes are recovering as furloughed workers either return to work or receive their mandatory leave allowance. According to today’s …
7th July 2020
May activity data consistent with our views The May activity data were weaker than most had anticipated but broadly consistent with our below-consensus forecast of a 9% q/q drop in Q2 GDP. While consumption soared in the US and many European countries …
3rd July 2020
The chances of PM Abe serving a fourth term as LDP leader have fallen considerably in recent months. Instead, speculation has turned to whether Mr Abe will be able to hang on as Prime Minister for the duration of his third term as party leader, which …
1st July 2020
Business investment to hold up well While business conditions collapsed in the Q2 Tankan, with economic activity now recovering that probably marks the trough. And surprisingly resilient investment forecasts for the upcoming fiscal year suggest weak …
Household incomes will continue to rebound The sharp drop in the number of furloughed workers in May supports our view that household incomes will rebound in the second half of the year. And while industrial production plunged again in May, it should also …
30th June 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Rebound in consumption will continue to disappoint The subdued rise in retail sales in May suggests that the lifting of the state of emergency didn’t provide a big boost to consumption and we reiterate our forecast of a 9% q/q plunge in Q2 GDP . And the …
Money stuck in the admin pipeline The flagship measure of April’s supplementary budget was the plan to distribute ¥100,000 to every resident. That was deemed a faster and more effective way of lifting consumption out of its coronavirus slumber than the …
26th June 2020
Premature fiscal policy tightening is part of the reason why inflation did not gain much momentum after the BoJ launched large-scale quantitative easing in 2013. But the main reason why inflation has remained stubbornly low is that the huge expansion in …
23rd June 2020
Services sector set to recover further While the manufacturing PMI weakened a little further in June, the rebound in the services PMI has further to run as virus-related restrictions are eased . As usual, the surveys were conducted since the middle of …
