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Not quite the bloodbath expected, but worse to come While the Q1 Tankan survey held up slightly better than we were expecting, it still showed a marked deterioration in business conditions. And with sentiment set to deteriorate further as lockdowns across …
1st April 2020
Economy was holding up well before corona collapse Activity indicators show that the economy continued to expand in February. Unfortunately, domestic and external demand have since collapsed, so output is set to contract sharply this year. The …
31st March 2020
Concerns over Japan’s rising debt burden may prevent the government from pulling all the stops if the coronavirus outbreak escalates much further. As such, the chance that the Bank of Japan will provide a helping hand by directly financing public …
30th March 2020
Surveys point to slump in activity The March flash PMIs confirm our view that the coronavirus outbreak resulted in a sharp fall in economic activity. The output component of the manufacturing PMI fell by more than five points and now points to industrial …
27th March 2020
Tokyo Governor Yuriko Koike is mulling a lockdown for the capital in response to a rise in coronavirus cases. Taking into account the composition of Tokyo’s economy, we estimate that a lockdown in the capital would reduce national output by 5% for as long …
26th March 2020
With the global coronavirus pandemic set to last for months, it now looks almost certain that this summer’s Tokyo Olympics will be postponed. The impact on the economy this year of such a move should be small. Moreover, Japan is still likely to reap the …
24th March 2020
Services sector hit hard by coronavirus outbreak While the manufacturing PMI didn’t fall as sharply as we had anticipated in March, the plunge in the services sector underlines that the coronavirus outbreak will result in a sharp slowdown in activity. The …
Loose lockdown relaxed as Europe and US tighten Japan’s coronavirus infections have been relatively stable in recent weeks even as those in Europe and the US have soared. (See Chart 1.) Some thought that Japan’s low infection numbers might just reflect a …
20th March 2020
Inflation to turn negative this year Inflation fell in February, and we expect it to moderate sharply this year as capacity shortages evaporate and the coronavirus opens up slack in the economy. By far the deepest downturn since 2009 should cause core …
19th March 2020
Surveys and timely data from late-February onwards show that the economy is in the midst of a deep downturn. Cinema sales, restaurant reservations and the Economy Watchers Survey all point towards consumer spending having collapsed at the end of last …
18th March 2020
Resilience in exports won’t last Exports bounced back in February even as China’s economy came to a standstill. But with the coronavirus now disrupting economic activity across the globe, that resilience won’t last. The 1.0% annual decline in export …
The measures announced by the Bank of Japan today lack teeth and we still expect policymakers to cut the short-term policy rate over the coming weeks. The Bank of Japan brought forward the meeting scheduled to end on Thursday to today but decided not to …
16th March 2020
Business investment set to fall sharply this year The slight rise in machinery orders in January suggests that business investment was recovering – albeit slowly – before the coronavirus began to dent economic activity from all angles. We think a sharp …
Activity indicators plunging amid virus There was a 16% y/y jump in grocery sales in the week beginning 24 th February and the Economy Watchers Survey (EWS) conducted at the same time similarly showed that supermarkets reported stronger activity. But this …
13th March 2020
Domestic demand slumped after sales tax hike and the recovery is being snuffed out Coronavirus outbreak is pushing the economy into recession Bank to follow other major central banks and cut policy rate from -0.1% to -0.2% The Bank of Japan has limited …
12th March 2020
We suspect that Japan’s government won’t intervene in the foreign exchange market until the yen hits 90 against the dollar. The key point is that foreign exchange intervention probably won’t prevent the yen from strengthening if risk aversion intensifies …
10th March 2020
Manufacturers in Japan are on the whole less dependent on imported components than those in other major rich economies and so are less vulnerable to global supply chain disruption. But there’s a mounting risk that the spread of the coronavirus within …
9th March 2020
Spread of coronavirus will deal severe blow to economy The plunge in the Economy Watcher’s Survey (EWS) in February to its lowest level since the 2011 tsunami suggests that the intensified spread of the coronavirus will cause consumer spending to fall …
Economy is probably in recession A disastrous Q4 following the sales tax hike was shown to have been even worse in the second estimate of GDP. That supports our bearish view that output will fall by 1% this year. It also further raises the chances of …
Downside risks to our already bearish forecasts It’s now looking likely that Japan’s economy will contract again this quarter, which would mean the economy is in recession for the first time since 2012. The biggest drag in Q1 is likely to have come from …
6th March 2020
Wage growth to remain soft as labour market loosens The sharp rise in wage growth in January was down to yet another sampling distortion. A more accurate measure showed that wage growth softened and we expect labour earnings to continue to disappoint this …
Two developments over the past couple of days have caused us to change our thinking on the outlook for monetary policy in Japan. We now assume that the coronavirus will spread widely across most of the world’s economies including Japan and that this will …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
We suspect that the BoJ’s response to the coronavirus will mostly consist of liquidity provision to banks and a renewed acceleration of its ETF purchases. We are not forecasting a cut in the Bank’s short-term policy rate. The Bank of Japan today issued a …
Virus likely to drag on exports and consumption The January activity data released today showed that the economy was recovering from the sales tax hike and the global economic slowdown on the eve of the coronavirus outbreak. What’s more, firms remained …
28th February 2020
Rebound in industrial production unlikely to last The coronavirus is likely to knock off course the slight recovery observed in the manufacturing and retail sectors last month. As such, we expect the unemployment rate to rise further over the coming …
With the number of confirmed infections of the new coronavirus rising in Japan, cancellation or postponement of this year’s Tokyo Olympics is becoming a possibility worth considering. The key point in terms of the economic impact of such a move is that …
21st February 2020
Activity data disappoint across the board We have long argued that Japan’s economy will shrink this year and the recent string of bad news has only made that outcome more likely. But we still don’t expect the Bank of Japan to respond with more policy …
Damage from coronavirus starting to show The renewed drop in the manufacturing PMI coupled with a slump in the services PMI suggests that the coronavirus has started to take a toll on Japan’s economy. The fall in the Jibun Bank flash manufacturing PMI …
Core inflation to fall this year Headline inflation edged down in January and we expect it to moderate further this year as capacity shortages diminish. A contraction in GDP this year should lead to easing price pressures, offsetting a boost to prices …
The profitability of Japan’s regional banks is likely to deteriorate further over the next few years. However, there’s little evidence of asset price bubbles and corporate balance sheets have continued to strengthen. In our view, even a shock akin to the …
19th February 2020
Sizeable drag on GDP growth from net trade in Q1 Exports fell by less than expected last month but net trade is set to be a major drag on GDP growth this quarter. Coronavirus-related disruption should contribute to net trade knocking around 0.6%pts off …
A slump in tourist arrivals has been the initial channel through which the virus outbreak in China has harmed Japan’s economy and will most likely knock around 0.4%-pts off GDP growth in Q1. As long as disruptions to supply chains and goods exports are …
18th February 2020
While October’s sales tax hike and Typhoon Hagibis were partly to blame for the sharp drop in manufacturing output in Q4, the bigger picture is that any recovery this year rests on a pick-up in external demand. Japanese industrial production fell …
17th February 2020
Japan’s economy to contract in 2020 The sharp drop in output after October’s sales tax hike supports our view that Japan’s economy will shrink this year. But with capacity shortages still tight and underlying inflation holding up, we still expect the Bank …
Bank of Japan will prevent a public debt crisis In its Article IV report, the IMF this week called Japan’s public debt trajectory “unsustainable” and proposed a further increase in the sales tax from 10% to 15% to reduce fiscal risks. Arguing that the …
14th February 2020
Cash is still widely used in Japan and amid concerns about the impact on financial stability, a central bank digital currency for retail transactions is unlikely to be introduced anytime soon. There’s a case for an e-yen in wholesale funding markets but …
12th February 2020
Economy defied coronavirus in January The marked improvement in the Economy Watchers Survey (EWS) in January suggests household spending bounced back strongly last month with no sign of a drag on sentiment from the coronavirus. Both household-related …
10th February 2020
Coronavirus could hit Japanese industry Two weeks ago we argued that the hit to tourism from the Wuhan virus had the potential to lower GDP by as much as 0.6%-pts this quarter (see here ). Since then, China’s intensified efforts to contain the virus have …
7th February 2020
Wage growth set to remain sluggish this year With the unemployment rate set to rise, we expect the softness of wage growth in December to continue into 2020. We are forecasting a disappointing 0.2% increase in labour cash earnings this year. According to …
Positive end to 2019 but consumption remains soft While consumer spending remained subdued in December following October’s sales tax hike, the continued resilience of the labour market suggests that this has yet to discourage firms from hiring new …
31st January 2020
Dove set to replace Harada on Policy Board The government’s nomination of reflationist Adachi Seiji to the Bank of Japan Policy Board this week doesn’t raise the chances of any fresh stimulus being announced in the near term. Adachi represents a …
Consumer spending set to disappoint this year Consumer confidence was unchanged in January, suggesting households are still reluctant to spend in the wake of the sales tax hike. We think consumer spending will remain soft, which should contribute to a …
29th January 2020
New coronavirus a threat to tourism The Wuhan coronavirus has now spread across China and to most neighbouring countries, including Japan. China has been much more proactive in trying to contain the disease than it was with SARS. But China is also much …
24th January 2020
Gloom lifting from manufacturing sector January’s flash manufacturing PMI showed activity in the sector has finally started to rebound. That’s consistent with recent signs of recovery in domestic and global demand. However, we think any improvement in …
Underlying inflation to moderate this year While headline inflation rose sharply again in December, we expect it to settle at around 0.5% this year. Higher energy inflation is likely to be offset by weaker underlying price pressures caused by easing …
Net trade boosted GDP growth last quarter We estimate that net trade boosted GDP growth by around 0.4 percentage points in Q4. However, much of that reflects soft domestic demand following October’s sales tax hike. We expect the external sector to drag on …
23rd January 2020
The Bank of Japan shocked no one in leaving its major policy settings unchanged today. And with obstacles to further easing high, the slight fall in capacity shortages we are expecting this year won’t be enough to push the Bank into cutting its policy …
21st January 2020
FSA seeks to change behaviour of regional banks The Financial Services Agency’s (FSA) plans to allow regional banks to diversify into a wide range of business areas is another step in the right direction by Japan’s financial regular. FSA chief Endo …
17th January 2020
The fall in long-term bank lending rates in November will reinforce the concerns of some BoJ Board members that ultra-loose monetary policy is harming the profitability of private banks. November’s drop in long-term lending rates was the sharpest since …
16th January 2020
