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In 2011, Japan recorded its first full-year trade deficit since 1980. The three main factors responsible were the Great East Japan Earthquake, the slowdown in global demand and the increase in commodity prices. However, the appreciation of the yen during …
13th March 2012
The Bank of Japan’s decision to extend its support for lending to “growth sectors” rather than add to its Asset Purchase Program (APP) today appears to have disappointed some but was the outcome that had looked most likely. Additional asset purchases will …
February’s household survey, released today, suggests that Japan’s consumers still lack confidence in the recovery, while the January data on core machinery orders do not yet justify hopes of a strong rebound in business investment. We continue to expect …
12th March 2012
In this Weekly we look at how last year’s disaster has changed Japan’s economy in the long-term. In our view, the legacy stems mainly from the nuclear catastrophe which will have lasting effects on the energy sector, industry, trade and public finances. …
The Bank of Japan is likely to have been pleased with the market response to the policy measures it announced in February, especially as neither the additional asset purchases nor the tweaks to the language on the price stability target were quite as big …
8th March 2012
Japan’s current account swung into deficit in January, but this was mainly the result of seasonal factors and the deficit is likely to be reversed in February. Nonetheless this acts as a reminder of the growing structural pressures on the current account …
The reintroduction of a government subsidy on fuel-efficient vehicles propelled a big increase in retail spending and industrial production in January. The subsidy should provide some support to auto production and sales this year, but we expect the …
5th March 2012
January’s increase in industrial production and forecasts for further rises in February and March point to a return to GDP growth in Q1. However, further increases in output beyond Q1 are far from assured as firms will soon be dealing with tight …
29th February 2012
The sharp rise in retail spending in January does not herald a resurgence in consumer spending. Sales are likely to drop back when one-off supports, such as the temporary reintroduction of the eco-car subsidy, run their course in the coming months. That …
28th February 2012
Japan’s stock market has been on a roll. We do not expect the good times to last. Although we are revising up our end-2012 and end-2013 forecasts for the Nikkei 225 slightly, to 7,750 (versus 7,500 previously) and to 8,100 (versus 7,600), respectively, …
27th February 2012
Recent increases in the price of oil to their highest level since 2008, and the possibility that they may climb even higher, raise questions over the sustainability of Japan’s economic recovery. In this Weekly we look at whether higher prices pose a …
The yen has fallen to its lowest level against the dollar in more than six months, with the exchange rate now just a whisker below 80. The principal catalysts for the weakening of the currency have been a shift in the relative prospects for unconventional …
21st February 2012
Economic conditions took a turn for the worse in November, as output, spending and exports all declined. Sentiment indicators for December were mixed with business confidence mostly stable, but falling amongst smaller firms, while consumer confidence …
Japan recorded its largest ever single-month trade deficit in January, as Chinese New Year holidays elsewhere in Asia caused exports to slump. Although the deficit should fall in February as the effect passes, other pressures remain and the country is …
20th February 2012
The Bank of Japan’s latest increase in its asset purchase program has caused asset prices to rally and the yen to weaken. However, it remains to be seen whether the effect will be sustained and translate into stronger economic growth remains to be seen. …
We welcome today’s move by the Bank of Japan to expand its Asset Purchase Scheme and formalise its inflation target. Although these moves should help support the economy and ease tensions in financial markets, they are only a small step in the right …
14th February 2012
The Japanese economy contracted in Q4 but is already showing signs of recovery. Reconstruction spending should initiate a return to growth in 2012, but it will be from a low starting point and in replacing lost assets the economy will be no better off …
13th February 2012
A large stream of income from Japan’s record holdings of overseas assets was the main reason the country did not record a current account deficit in 2011. With trade surpluses likely to be a thing of the past, a surplus on the income account is Japan’s …
Today’s report on core machinery orders in December adds to the evidence that GDP contracted in Q4. However, it also points to a recovery in non-residential investment this year that should help the economy to return to growth. Rising consumer confidence …
9th February 2012
Recent survey evidence has pointed to a further pick-up in economic activity in January, but also highlighted the considerable uncertainty in the economic environment. The results of January’s Economy Watchers’ Survey, published today, are a reminder of …
8th February 2012
The February meeting of the Bank of Japan’s Policy Board is likely to be uneventful, unless the Ministry of Finance orders another round of intervention in foreign exchange markets. If the Bank intervenes, it will almost certainly also expand its asset …
7th February 2012
The renewed rise in the yen against the dollar and growing evidence of the damaging effect on the real economy have brought further warnings from Ministry of Finance over the inappropriate strength of the currency. But whether the ministry intervenes …
6th February 2012
Industrial production surprised on the upside in December, and survey evidence points to another strong month in January. Whilst it is nice to get some good news on the Japanese economy, it is hard to see how this rebound can be sustained as global demand …
31st January 2012
Growing uncertainty about the future of Japan’s power supply will accelerate the hollowing out of industry as electricity shortages discourage investment in Japan and encourage a shift of production abroad to find secure, and cheaper, power sources. … …
30th January 2012
Japan today announced that it ran a full year merchandise trade deficit in 2011. Although one year’s deficit is relatively unimportant, we expect it will be repeated over the coming years. … The end of Japan’s trade …
25th January 2012
23rd January 2012
The Japanese Finance Minister has floated the possibility of another round of intervention in foreign exchange markets, this time aimed at stemming the rise of the yen against the euro. However, this would not necessarily require purchases of the European …
The January meeting of the Bank of Japan’s Policy Board will yield updated forecasts for GDP and inflation but probably little else. We don’t expect any changes in the Board’s monetary policy stance, although we think further action will eventually be …
19th January 2012
The rebound in core machinery orders in November reduces but does not extinguish our concerns that the recent upward trend in orders has come to an end. The economic outlook is not conducive to investment spending, increasing the probability that GDP …
16th January 2012
The FY2012 budget has increased our concerns that a tipping point in Japan’s public finances is getting closer. The proposed increase in the consumption tax to 10% would not be enough to put the public finances on a sustainable track. A larger increase is …
Recent survey evidence, including today’s Economy Watchers’ Survey, has indicated a pick-up in activity in December. However, the evidence also suggests that this is unlikely to continue as firms expect business conditions to deteriorate again in the …
12th January 2012
Japan's current account surplus is on a declining trend, with the merchandise trade balance already in annual deficit. These developments will add to concerns over Japan's ability to finance its huge public debt, although for now at least the country's …
9th January 2012
In this Weekly we take a look back at 2011. The devastating earthquake and tsunami in March was undoubtedly the most significant event of the year. Principally a human tragedy, the disaster also had substantial economic and political consequences. The …
22nd December 2011
The weakening global economy and the strong yen are weighing heavily on Japanese exports and will probably mean GDP contracts in Q4. The downgrade by a domestic credit rating agency highlights the government’s limited scope for providing further fiscal …
21st December 2011
Activity and output rebounded in October after the weak performance of monthly indicators at the end of the third quarter. Sentiment and early indicators for November, however, show a turn for the worse with businesses and consumers expecting a further …
20th December 2011
The headwinds facing the Japanese economy are more likely to grow than abate, prompting us to revise down our GDP forecasts out to 2014. A sharp slowdown in the global economy is likely to leave Japanese GDP reliant on domestic demand which will find …
19th December 2011
Worse than expected results from the Tankan survey and deteriorating global conditions have prompted us to revise down our Japan GDP forecasts for 2012 and beyond. We continue to expect a full-year recession in 2011 and a rebound in growth in 2012, but …
15th December 2011
Japan’s staggering level of public debt makes Greek and Italian liabilities look like pocket change. Its financial liabilities over the next few years are many multiples of its euro-zone peers and its politicians remain blind to the need for urgent reform …
13th December 2011
The recovery in consumer confidence came to a halt in October and started to unwind in November. Consumers remain particularly concerned about employment prospects, but are also increasingly worried about their income. … Consumer Confidence …
12th December 2011
The Japanese economy is sinking back into deflation. Domestically-generated inflationary pressures are non-existent, while the appreciation of the yen accentuates the effects of falling global commodity prices by reducing the cost in yen of imports. …
The government’s Business Outlook Survey indicates a marked deterioration in conditions in Q4, and is consistent with a contraction in both the Q4 Tankan survey and GDP. The survey suggests the economy has lost what little forward momentum it had earlier …
9th December 2011
Month-to-month volatility in core machinery orders is nothing new. But the latest drop is unusually large and, coupled with evidence from the Economy Watchers’ Survey that business confidence is falling, suggests that the economy is weakening. … Falling …
8th December 2011
The Japanese government has announced a fourth fiscal budget in a sign it remains reliant on its fiscal firepower to support the economy. But there are limits to how much it can do and it is already living well beyond its means. The new budget can only be …
5th December 2011
Disruption to Japanese industrial production from the floods in Thailand appears to be diminishing, boosting output. Beyond this, there is little momentum and even this is likely to wane as emerging market growth slows and the developed economies teeter …
30th November 2011
Japan’s labour market is weaker than at the start of the year but the sharp rise in the unemployment rate in October makes conditions look worse than they are. The economy is not shedding jobs, but neither is it creating them. … Labour market fragile, …
29th November 2011
Recent events in advanced economies have underscored just how quickly market sentiment towards sovereigns with unsustainable finances can shift. Last week two warning shots were fired across the bow of the Japanese government to remind policymakers that …
28th November 2011
GDP growth turned positive in Q3 but monthly data show the economy had stopped and gone into reverse by the end of the quarter. The first flush of data for October shows that conditions have remained difficult and business sentiment is fragile, although …
22nd November 2011
The sharp fall in exports in October was in part the result of the floods in Thailand. However, exports have been sluggish for over a year and are likely to remain weak due to slowing global growth and the impact of the strong yen, which firms have yet to …
21st November 2011
Temporary factors are likely to cause output in the auto sector to fall in the coming months. The period of restocking that has supported production appears to have largely run its course, both at home and abroad, while the damage caused to Japanese …
Prime Minister Noda’s announcement on Friday that Japan would join negotiations on the Trans-Pacific Partnership free-trade agreement is a step in the right direction. Not only would the pact open up the economy to imports, it would support a struggling …
14th November 2011
