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While the Bank of Japan today decided to stick to its guns, the recent sharp slowdown in economic activity and the prospect of a prolonged period of near-zero inflation should soon convince policymakers that more easing is needed. We maintain our view …
7th August 2015
There are tentative signs that underlying price pressures have strengthened again since the start of the year. However, GDP almost certainly shrank in Q2, and a rapid rebound in the second half of the year is not on the cards. The chances of hitting the …
5th August 2015
The economy almost certainly contracted last quarter, rendering the Bank’s upbeat GDP forecasts increasingly unrealistic and denting hopes that inflation will reach 2% by next summer. Rather than merely expanding the timeframe for hitting the 2% target …
4th August 2015
Labour cash earnings fell the most since the 2009 recession during the first month of the summer bonus season, highlighting that the tight labour market has not created stronger wage pressures. … Labour Cash Earnings …
The June activity and spending data cemented our view that Japan’s economy shrank last quarter.While business surveys point to a rebound in Q3, growth will likely remain too slow to create strong price pressures. We stick to our forecast that the Bank of …
31st July 2015
Today's data provide some tentative signs that underlying price pressure has started to strengthen again. But with consumer spending falling to the lowest level since last year’s sales tax hike, we see little chances that the 2% inflation target will be …
Other things being equal, population ageing should boost price pressures. But that hasn’t happened in Japan because there has been an offsetting increase in the share of adults willing to work. Instead, perhaps the key channel through which population …
30th July 2015
The rebound in industrial output in June was not strong enough to prevent a contraction in Q2, and we stick to our view that the economy shrank last quarter. … Industrial Production …
The jump in small business confidence in July suggests that the economy should recover in the third quarter after Q2’s slump. … Small Business Confidence …
29th July 2015
The renewed drop in retail sales in June adds to the evidence that consumer spending fell last quarter. … Retail Sales (Jun.) …
We expect the ratio of net government debt to GDP to remain broadly unchanged in coming years, as a weaker yen and a buoyant stock market should lift the value of public assets by enough to offset higher gross debt levels. However, inflation will have to …
24th July 2015
Today’s flash manufacturing PMI suggests that the sector returned to growth in the third quarter following a likely drop in output in Q2. … Flash Manufacturing PMI …
The Bank of Japan has started to publish a wider set of inflation measures in its monthly report. With all of them showing inflation well below the 2% target, we think suggestions that this shift makes further policy easing less likely are wide of the …
23rd July 2015
While today’s data showed a rebound in export values in June, we think that net trade remained a drag on GDP growth last quarter. … External trade …
We expect Japan’s GDP growth rate to average under 1% over coming years, too slow for the Bank of Japan to take its foot off the monetary pedal any time soon. For financial markets, this is likely to translate into further yen weakness and equity gains. … …
17th July 2015
Despite some small adjustments, the Bank of Japan’s interim forecasts today reveal that policymakers remain upbeat about the outlook. But weak economic activity and the prospect of a prolonged period of below-target inflation should soon convince …
15th July 2015
The slowdown in economic activity in Q2 has dented hopes of an imminent strengthening of price pressure. The Bank could simply push the timeframe for hitting its 2% inflation target back yet again, but this would risk undermining the credibility of QQE. …
13th July 2015
Almost three years after the yen started its steep fall, there is still little evidence of any boost to export volumes. Instead, a weaker exchange rate has mostly improved the non-energy trade balance by restraining import demand. … Weaker yen starts to …
10th July 2015
Credit growth remains strong by past standards, and there are some signs that households’ appetite for borrowing has strengthened. We therefore think that household and corporate debt will continue to expand at a solid pace. … Monetary Indicators Monitor …
9th July 2015
Machinery orders climbed to a seven-year high in May and suggest that business investment continued to expand last quarter. … Machinery Orders …
Today’s Economy Watchers Survey (EWS) suggests that industrial output is no longer falling, but a rapid rebound is not on the cards either. … Economy Watchers Survey …
8th July 2015
The current account surplus jumped in May, but we think it will fall again in coming months. … Current Account (May) …
With trade and direct financial ties between Japan and Europe relatively weak, the main channel through which Greek exit from the euro-zone could affect Japan is a pick-up in safe haven flows. If that happened, it could trigger renewed strengthening of …
3rd July 2015
The Bank of Japan’s preferred inflation measure fell to near zero in May. Policymakers appear confident that a vigorous recovery in demand will create capacity shortages and boost price pressures in the months ahead, but the latest activity data suggest …
2nd July 2015
While the Tankan rose last quarter, a range of activity data point to a contraction in GDP in Q2. … Tankan (Q3) …
1st July 2015
Beyond a handful of economies in Emerging Europe, the direct links between Greece and the rest of the emerging world are limited. What matters for most EMs is not so much the crisis in Greece itself, but whether this triggers contagion and large-scale …
30th June 2015
The plunge in industrial production in May points to a contraction in GDP this quarter, and corroborates our view that the Bank of Japan will have to step up the pace of easing before too long. … Industrial Production & Retail Sales …
29th June 2015
We estimate that wages would have to rise by 3% or more to reach the Bank of Japan’s 2% inflation target. Even if the unemployment rate drops further in the months ahead, we think that wage growth may only reach around 1.5% by the end of next year. The …
26th June 2015
Even though the labour market continues to tighten, the Bank of Japan’s preferred inflation measure fell towards zero last month. Sluggish consumer spending suggests that price pressures are unlikely to strengthen as rapidly as policymakers hope, so more …
Following the drop in the flash estimate of the manufacturing PMI, the fall in small business confidence in June adds to evidence that the economy slowed sharply in Q2. … Small Business Confidence …
24th June 2015
The renewed fall in the manufacturing PMI in June provides additional evidence that activity in the sector may have fallen in the second quarter. … Flash Manufacturing PMI …
23rd June 2015
Only a small part of the recent plunge in energy prices has been passed on to consumers in Japan, in large part because firms rather than households are the biggest users of oil and they have not reduced output prices by much in response. Even if firms …
19th June 2015
Even if the government goes ahead with the sales tax that is currently scheduled for 2017, we think it will struggle to reduce the budget deficit much further. Rather than more fiscal reforms, the only plausible solution to Japan’s debt problem is for …
18th June 2015
The trade deficit narrowed slightly in May, but should creep higher in the second half of the year as the weaker yen pushes up import costs. … External trade …
17th June 2015
The strength of Q1 GDP seems to have vindicated the Bank of Japan’s optimistic outlook on the economy. However, we think that growth will be much slower in the rest of the year, so inflation is unlikely to pick up as quickly as policymakers hope. We …
15th June 2015
The jump in output in Q1 and, over a longer period, rapid growth in the number of people available for work are signs that Abenomics is starting to have an impact. However, the economy likely slowed again this quarter, and the surge in the number of …
12th June 2015
The depreciation of the yen has increased the weight on bank balance sheets of lending abroad. With profitability similar, but default rates lower than on domestic loans, we think that overseas lending will continue to outpace domestic lending. … …
10th June 2015
The renewed rise in machinery orders in April suggests that non-residential investment should continue to recover in the second quarter. … Machinery Orders …
The small drop in consumer confidence last month masks a rebound in households’ income expectations, which suggests that they may increasingly be willing to spend some of the windfall from lower energy prices. … Consumer Confidence …
9th June 2015
Today’s Economy Watchers Survey (EWS) suggests that activity in the manufacturing sector slowed sharply in the second quarter. … Economy Watchers Survey …
8th June 2015
While revised data showed that Q1 GDP expanded even more strongly than initially estimated, a slowdown in Q2 looks likely. … GDP (Q1 Revised) & Current Account …
We remain convinced that a weaker yen is needed to boost demand, lift inflation and put the public finances on a sustainable path. As long as the exchange rate continues to weaken gradually rather than abruptly, we think that wage gains should be strong …
5th June 2015
Several commentators have expressed unease about yen weakness, with some even arguing that the government may intervene if the ongoing slide persists. But a weaker yen is a key transmission channel in the Bank of Japan’s efforts to lift inflation. The …
4th June 2015
The diverging prospects for monetary policy in Japan and the US have resulted in a renewed weakening of the yen in recent weeks. With price pressures set to remain subdued, we think that the Bank of Japan will have to step up the pace of easing before too …
3rd June 2015
We wouldn’t read too much into the rebound in wage growth in April. In fact, we think that labour costs will continue to grow far too slowly to create broad-based price pressure. … Labour Cash Earnings …
2nd June 2015
The Ministry of Finance’s survey on corporate finances suggests that business investment was stronger last quarter than initially estimated. … Capital Expenditure …
1st June 2015
Households have benefitted less from the plunge in energy prices and the surge in overseas investment income than other sectors. With wage growth set to remain subdued, we think that consumer spending will be sluggish this year before picking up next year …
29th May 2015
With economic activity sluggish and price pressures subdued despite a tighter labour market, we remain convinced that the Bank of Japan will have to step up the pace of easing before too long. … Industrial Production, Household Spending, Unemployment & …
The rebound in retail sales in April did not reverse the plunge in March, and we think that consumer spending will remain sluggish in coming months. … Retail Sales …
28th May 2015
Japan’s butter shortage is the result of agricultural policy failures. It should strengthen the argument that agreement to scale back protectionist measures in the ongoing talks on the Trans-Pacific Partnership Agreement would leave Japan better off. … …
27th May 2015
