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Japan’s government could still decide to delay the consumption tax hike scheduled for April 2014. The damage to credibility may be lessened if the economy is clearly too weak and a sensible alternative plan (with fiscal “forward guidance”) is put in …
14th August 2013
Even without the need to mitigate the impact of the planned doubling of the consumption tax, the arguments for lowering Japan’s relatively high corporate tax rates would be very strong. But with a substantial fiscal squeeze coming otherwise, the arguments …
13th August 2013
Capital spending has lagged well behind the recovery in the rest of Japan’s economy, but it should now start to make a decent contribution to growth from the third quarter onwards. In turn, this may ease concern about the potential impact of the …
Last week India appointed Raghuram Rajan, a former chief economist at the IMF, as the new governor of the Reserve Bank (RBI). The new governor takes over at a tricky time, with India’s economy struggling with a range of problems. This Weekly looks at the …
12th August 2013
The conventional wisdom is that a weak yen should help boost the competitiveness of Japanese exports. However, most exports are invoiced in foreign currency, and exporters have been reluctant to lower export prices. Instead, the weak exchange rate has led …
The Bank of Japan’s decision today to refrain from any additional easing on top of that already planned reflects the Board’s conviction that the measures taken so far are working. But with signs mounting that the recovery is already slowing, further …
8th August 2013
Japan’s economy likely continued to grow at a solid pace in the second quarter of the year, even though the recent wide divergence between various measures of consumer spending raises question marks about the exact speed. However, the recovery may have …
6th August 2013
The Bank of Japan will likely leave policy settings unchanged at its two-day August meeting, which concludes on Thursday. Governor Kuroda has indicated that a condition for further easing is the implementation of the consumption tax hike. The central bank …
5th August 2013
China’s economy is set to slow further over coming years but we believe that the slump in growth many are now predicting will be avoided. … Tampering with the sales tax hike carries …
The first drop in the manufacturing PMI since late last year indicates that the recovery may now be entering a slower phase. Meanwhile wage growth remains insufficient to compensate for rising inflation as regular pay continues to fall. … Manufacturing …
31st July 2013
We are not too worried about the fall in industrial production in June, as manufacturers forecast a strong rebound in July. Small business confidence also remains at relatively high levels. … Industrial Production, Unemployment (Jun.)& Small Business …
30th July 2013
Today's retail sales figures suggest that consumer spending will again have given a solid boost to GDP growth in Q2. However, sales in June were lower than a month before, and surveys suggest that consumer spending is already slowing. … Retail Sales …
29th July 2013
Housing construction should give a boost to the wider economy over coming quarters as low mortgage interest rates support property demand. But Japan’s property market is approaching a turning point, with the number of households on the cusp of a sustained …
The first positive inflation numbers in a year largely reflect the slump in the yen. Excluding food and energy, much of which is imported, Japanese inflation is still negative and should remain so for some time. … Consumer Prices …
26th July 2013
The first June trade deficit in more than 30 years shows that the slump in the yen has had little impact on Japan’s competitiveness. With exporters declining to cut prices to boost volumes and global demand likely to remain sluggish, the trade balance is …
24th July 2013
Japan’s formal entry into negotiations on the Trans-Pacific Partnership (TPP) today is only the first step on a long road. Indeed, the talks are likely to drag on well into next year, and perhaps beyond. The decision on whether to press ahead with the …
23rd July 2013
The economic case for raising Japan’s consumption tax is overwhelming. We think the government will decide to go ahead with the first hike planned for April next year, provided GDP has not slowed too far in Q2. Indeed, not going ahead would deal a severe …
22nd July 2013
This report is only available as a PDF. Click to download. … Hard work begins after the Upper House elections …
18th July 2013
A partial resumption of nuclear energy generation is unlikely to reduce Japan’s trade deficit meaningfully. Electricity prices could fall slightly, but are likely to remain very high compared to prices in other countries. … Nuclear energy restart not a …
16th July 2013
There are now some tentative signs that broad money supply is responding to the Bank of Japan’s more aggressive easing. Since April the broadest money measure has increased at the fastest pace in y/y terms since the early 1990s. However, bank lending …
15th July 2013
Inflation expectations have jumped since the Bank of Japan’s announcement of more aggressive easing in April. Higher inflation should be beneficial for borrowers as it will erode the real value of debt, and may therefore be one of the reasons for the …
Media reports suggest that the Japanese government plans to focus increasingly on the CPI excluding food and energy when gauging progress towards overcoming deflation. We do not expect this to make much difference to monetary or fiscal policy, but it …
11th July 2013
The increasingly upbeat tone of the Bank of Japan’s comments on the economic recovery has dampened consensus expectations of additional monetary easing (on top of that already planned). However, a closer look at the latest inflation forecasts suggests …
The fall in consumer confidence in June suggests that the Abe government’s honeymoon period with the public is coming to an end. Sentiment remains at relatively high levels and could pick up again in July (in good time for the Upper House elections), …
10th July 2013
The headline indices from today’s Economy Watchers Survey (EWS) are still at high levels, but the larger-than-expected falls in June point to slower growth in Q2 and beyond than in Q1. While other surveys, including the manufacturing PMI and the Tankan, …
8th July 2013
The Bank of Japan’s two-day July meeting (which concludes on Thursday) is unlikely to result in any major policy changes. Indeed, the Board is probably much happier with recent market developments – particularly what is happening to government bond yields …
The precise results of the upcoming Upper House elections may matter less than commonly thought. While the governing LDP/New Komeito coalition will probably regain a majority of the seats, it is unlikely that it will achieve the two-thirds majority …
The recovery in Japan’s economy seems to have maintained its pace in the second quarter. Survey measures of business and consumer confidence have risen further, shrugging off the recent volatility in financial markets. However, industrial production may …
3rd July 2013
Today’s official release confirmed that labour cash earnings were still subdued in May, but we can already be confident that higher summer bonuses will deliver much better headlines for June and July. The big unknown is whether regular pay will also start …
2nd July 2013
Today’s Tankan survey confirms that Japan ' s economy is continuing to recover, albeit gradually. The survey is based on replies received up until just a few days before publication, so it is relatively timely and should capture any adverse impact from …
1st July 2013
The main factors behind the partial recovery in Japanese equities in the last few days have been external, namely the fading of concerns about the outlook for US monetary policy and the risks of a prolonged credit squeeze in China. However, the mood has …
The improvement in small business confidence in June shows that “Abenomics” is continuing to deliver real benefits despite the volatility in the financial markets. However, the detail of the Shoko Chukin Bank survey illustrates some of the challenges …
25th June 2013
The focus in the past week has been the impact on Japanese financial markets of potential changes to US monetary policy. We have revised our forecasts in the wake of the latest volatility, but the changes are mostly benign: a gradual rise in JGB yields, a …
24th June 2013
As the Fed prepares to taper its program of quantitative easing, there are some concerns in Asia that it could trigger a messy re-run of 1994. We think these concerns are exaggerated. … Monetary Indicators Monitor …
21st June 2013
The double-digit rise in Japan’s export revenues in May is clearly welcome and should be reflected in higher summer bonuses. However, the import bill is also surging and export volumes remain subdued. … Surge in exports not quite as good as it …
19th June 2013
Many commentators have dismissed the government’s 3% target for GDP growth as far too ambitious. But there are two key points that at least some have missed. First, the target applies to nominal income. The Bank of Japan has already committed to raising …
14th June 2013
The rebound in the yen and associated weakness in Japanese equities reflect fears about the outlooks for monetary policy in both Japan and the US. However, these fears look increasingly overdone. … What's behind the rebound in the …
13th June 2013
The drop back in machinery orders in April is not the disaster that the headlines suggest, but hopes of a rapid turnaround in investment are clearly premature. The main headwind is the large amount of spare capacity already available – something that …
12th June 2013
The Bank of Japan’s Policy Board was content simply to upgrade its economic assessment today. This disappointed those hoping for further monetary easing in response to the recent volatility in financial markets. However, the Board is surely right to take …
11th June 2013
The economic data have started the week on a brighter note. Admittedly, the upward revision to Q1 GDP is largely old news and the detail is less positive. However, the May readings on consumer confidence and the Economy Watchers Survey (EWS) suggest that …
10th June 2013
If the recent volatility in Japan’s equity and bond markets was not enough to undermine confidence, the yen has also rebounded in the last few days. However, the partial recovery in the Japanese currency should not be a major concern – whether for …
The Bank of Japan’s two-day June meeting (which concludes on Tuesday) is unlikely to result in any major policy changes. The Board will probably discuss tweaks to its money market operations and asset purchases in response to the recent market volatility. …
6th June 2013
Judging by the initial market reaction and media coverage, PM Abe’s “growth strategy” already appears to be a damp squib. To be fair, it was always unrealistic to expect a Prime Ministerial speech in a Tokyo hotel to provide a lot more detail than has …
5th June 2013
After a strong start to the year, the early signals for the second quarter have been mixed. Business and consumer confidence is still at high levels, although it remains to be seen whether this will be sustained given the recent volatility in financial …
Although barely on the radar of most investors just yet, the Abe government’s decision on whether to press ahead with the planned fiscal tightening in 2014 and beyond may well be the most important policy event in the remainder of this year. Indeed, in …
3rd June 2013
Japan’s inflation rates look set to turn positive soon. Admittedly, nationwide inflation was still firmly negative on a year-on-year basis in April. But the more timely data for the Tokyo CPI in May looked rather better. What’s more, prices were already …
Despite all the hype about “Abenomics” already encouraging a surge in consumer spending, the hard data on retail sales remain subdued. This makes sense given the persistent weakness of employment and wages, which are far more important drivers of spending …
29th May 2013
The incoming economic data are of course being overshadowed by the market volatility, but today’s Shoko Chukin survey suggests that small businesses may be losing a little faith in “Abenomics” too. … Small business survey illustrates risks to …
28th May 2013
If the global financial community was not already following the progress of “Abenomics” closely, Thursday’s slump in the Nikkei has certainly focused worldwide attention on what is happening in Japan. However, we think it would be quite wrong, or at least …
27th May 2013
Today’s slump is not necessarily the end of the bull market in Japanese equities, but the next few months will be much harder going. We continue to expect the Nikkei to fall further, probably below 13,000, before the end of 2013. … Boost to Nikkei from …
23rd May 2013
