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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
Despite a rebound in May, small business confidence still suggests that the economic recovery lacks vigour. … Small Business Confidence …
The trade balance returned to deficit in April and will likely remain in the red in coming months. … External trade (Apr.) …
25th May 2015
There are increasing signs that the weak yen is finally curbing demand for imported goods, but the trade deficit should nonetheless widen again next year as consumers bring forward spending ahead of the sales tax hike in 2017. Net exports should therefore …
22nd May 2015
The Bank of Japan’s more upbeat economic assessment today suggests that the introduction of more stimulus as early as July is off the table. However, we remain convinced that the prospect of prolonged below-target inflation will convince policymakers to …
While the rebound in the manufacturing PMI in May suggests that the sector is not doing as badly as we had feared, there is a long way to go to recoup the 4% fall in activity since January. … Flash Manufacturing PMI …
21st May 2015
The acceleration in GDP growth last quarter was mostly due to a jump in inventories, and a range of indicators point to a slowdown in the second quarter. … GDP (Q1 …
20th May 2015
The Bank’s decision not to announce more stimulus at the end-April meeting will only make it more difficult to reach its 2%-inflation target, as any support from a weaker yen and rising import prices will be less pronounced. With economic activity …
18th May 2015
Machinery orders rose by more than 6% q/q last quarter, so business investment should have finally started to recover again. … Machinery Orders …
Because of its outsized weight in the consumer price basket, housing rent has a significant impact on inflation in Japan. Unfortunately for the Bank of Japan, it seems likely that rent will continue to decline, undermining policymakers’ efforts to reach …
15th May 2015
Following four straight increases, the small drop in consumer confidence in April is no disaster. What’s more, the Bank of Japan will have been pleased by the fact that inflation expectations are holding up. … Consumer Confidence …
Banks report slowing loan demand but aggregate credit growth nonetheless remains strong as lower yields have encouraged firms to turn to the bond market for funding. … Monetary Indicators Monitor …
14th May 2015
The increase in the headline index of today’s Economy Watchers Survey (EWS) masks a deterioration in some of the subindices, and we still think that economic activity will remain sluggish in the second quarter. … Economy Watchers Survey …
13th May 2015
The current account surplus jumped to a multi-year high in March, and we think that it will be the highest this year since 2010. … Current Account …
We are not convinced that the BoJ’s decision to use the monetary base as its operational target limits the effectiveness of QQE, as some are suggesting. More problematic is that the reduction in real interest rates that policymakers hope the programme …
12th May 2015
The Bank of Japan’s decision not to step up the pace of easing at the end of April has prompted us to pare back our expectations for yen depreciation in the near term. But we still think that policymakers will have to act before too long and that this …
8th May 2015
Recent data suggest that economic activity held up fairly well at the start of the year and that the labour market continues to tighten. However, there are no signs that price or wage pressures are strengthening, and we still think that the Bank of Japan …
7th May 2015
Negative rates on central bank reserves could be one way to reduce bank lending rates further in Japan. This idea has received some attention in the media recently, but it does not appear to be under consideration by the Bank of Japan. As such, the …
1st May 2015
While the labour market continues to tighten, inflation remains near zero and wages are barely rising. The BoJ will have to step up the pace of easing before long. … Unemployment, Household Spending, Consumer Prices & Labour Cash Earnings …
The Bank of Japan today decided to leave policy settings unchanged, thus ignoring signs that its efforts to lift inflation towards the 2% target are stalling. However, we think that the threat of persistent deflation will force policymakers to step up the …
30th April 2015
The decline in industrial production in March was much less pronounced than expected and suggests that GDP growth remained solid last quarter. As such, it would provide an excuse for the Bank of Japan to leave policy settings unchanged at its meeting …
Small business confidence weakened in April and remains consistent with sluggish activity in the manufacturing sector. … Small Business Confidence …
28th April 2015
The renewed plunge in retail sales values in March suggests that consumer spending may have fallen last quarter. … Retail Sales …
With economic activity sluggish and inflation slowing, we think it is a question of when rather than if the Bank will step up the pace of its asset purchases. Mr Kuroda has given no hint recently – including at the Bank’s meeting earlier this month – that …
27th April 2015
