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The potential market implications of a fiscal crisis may not be as clear cut as some assume, particularly for JGBs, but it is hard to see any outcome that does not involve some further weakness both in equities and in the yen. In this Weekly we suggest …
31st January 2011
The fall in unemployment in December is obviously welcome but the big story is the collapse in retail sales. After the better news on exports yesterday, the risks to our preiiminary forecast of a 0.6% q/q fall in Q4 GDP have shifted back to the downside. …
28th January 2011
S&P’s decision to downgrade Japan’s sovereign credit rating one notch (to AA-) today may not be a big deal in itself, but it supports our fears that 2011 will be the year when Japan’s dire fiscal position finally impacts markets both at home and abroad. … …
27th January 2011
Exports ended 2010 strongly but they still fell in the final quarter and net trade is likely to be another negative for Q4 GDP. … External Trade …
Conditions faced by smaller Japanese businesses appear to have stopped deteriorating but remain more difficult than the recent peaks seen in mid-2010. What’s more, the detail of the latest survey suggests that some key ingredients of a sustainable …
26th January 2011
There were no surprises from the Bank of Japan meeting that ended today and policy was unchanged. Nonetheless, we continue to expect further easing later this year to undermine the yen as the global recovery on which the Board's forecasts are so heavily …
25th January 2011
The Bank of Japan’s Policy Board is unlikely to announce any major policy initiatives at the two-day meeting which concludes tomorrow. … Forecasts looking too …
24th January 2011
The appointment of Kaoru Yosano as Minister for the Economy and Fiscal Policy has revived discussion of the case for a hike in the consumption tax, but no decision is likely until mid-year at the earliest. In the meantime, the faltering economic recovery …
Japanese consumers' gloom deepened in December, in line with our expectations but in contrast both to the consensus and to the more positive tone in the equity market. The deterioration in confidence was predictably led by the willingness to buy durable …
17th January 2011
In light of our growing concerns about the outlook for Japan’s economy and the risks of a fiscal crisis, we are cutting our end-2011 forecast for the Nikkei 225 from 10,750 to 9,000. This might appear to sit oddly with our forecast that the yen will fall …
The November data show that machinery orders were on track to fall in the fourth quarter of last year, suggesting that investment will have declined too. Hopes that a continued recovery in business spending will help to offset the anticipated declines in …
13th January 2011
The Economy Watchers Survey (EWS) suggests that the recovery may have regained some momentum in December, but the outlook component is still weaker than current conditions and both are well below the levels seen in the first half of 2010. Meanwhile, bank …
12th January 2011
Japan’s announcement that it will buy bonds issued by the European Financial Stability Facility (EFSF) has been heralded by some as further evidence of the international support that might help to prop up the euro-zone. In reality these purchases are …
11th January 2011
Optimism about the global economy and buoyancy in overseas markets has allowed the Nikkei to start the year positively. But while Japanese equities may still appear to be relatively cheap compared to their peers, there are good reasons for them to remain …
10th January 2011
Markets are in a festive mood, but the more we think about the near-term prospects for the Japanese economy, the less merry we become. Indeed, it now seems more likely than not that Japan will stumble back into recession early in 2011. … How it could all …
24th December 2010
The pick-up in the year-on-year growth rate of exports in November may look encouraging but exports are heading for a big quarterly fall. What's more, imports are relatively buoyant, meaning net trade will be an even larger negative for GDP. … External …
22nd December 2010
The Bank of Japan left policy on hold today, as universally expected, while the accompanying statement lent heavily on hopes of a strong recovery in the rest of the world. The problems at home were underlined by the expenditure breakdown released today …
21st December 2010
GDP will almost certainly fall in the current quarter but we are increasingly concerned that it may drop further in the first three months of 2011 as well, meaning that Japan will technically be in recession again. This is not yet a risk that is being …
20th December 2010
The Bank of Japan’s Policy Board is unlikely to announce any major policy initiatives at the two-day meeting which concludes next Tuesday. However, we continue to think that the central bank will have to increase its programme of asset purchases …
16th December 2010
The corporation tax cuts agreed by the Cabinet today and the supplementary budget passed at the end of November are simply tinkering at the margin. The mountain of public debt and looming demographic shifts mean that the scope for fiscal policy to support …
The Bank of Japan's quarterly Tankan survey confirmed that the recovery is fading, with small businesses struggling and investment demand still weak. … Tankan Survey …
15th December 2010
Japan will almost certainly top the G7 league table for GDP growth in 2010 (with Germany the likely runner-up), but this rebound has to be seen in the context of a relatively low starting point. The year is also ending on a low note, with retailers …
13th December 2010
Japanese consumers continued to turn more pessimistic in November, with confidence undermined by worries about the labour market and a reduced willingness to buy durable goods. The latter will almost certainly deteriorate further in December following the …
10th December 2010
November's Economy Watchers Survey (EWS) suggests that conditions may not be quite as bad in the fourth quarter as some fear, although the outlook is cloudier. The weakness of machinery orders at the start of the quarter is certainly discouraging. … …
8th December 2010
Japan's manufacturing sector has continued to weaken despite signs that industrial activity is picking up again in other major economies after a slowdown in the summer. This period of underperformance should end soon as car production levels out and the …
6th December 2010
As usual the latest Japanese data include something for everyone, with unemployment edging higher but industrial production not as weak as feared in October and expected to recover. … Unemployment & Industrial Production …
30th November 2010
October's drop in retail sales, like that in September, was exaggerated by the expiry of government subsidies for car purchases. The trends in overall consumer spending are healthier than the headlines suggest, but sales are likely to drop sharply in Q4. …
29th November 2010
The consensus is usually right to focus on the core measures of Japan’s CPI when looking at the prospects for a permanent end to deflation and the implications for monetary policy. Nonetheless, trends in all items inflation are still important when …
26th November 2010
The return of inflation to Japan last month was widely expected and likely to be temporary, but this does not mean it should be ignored completely. … National CPI …
Japan’s exports are weakening due both to the strength of the yen, which has already caused the local currency value of overseas sales to fall outright for most of the year, and more recently to a slowdown in global demand, which is undermining the volume …
25th November 2010
Japan’s economy grew more strongly than most had anticipated in the third quarter and inflation may even have turned positive at the beginning of the fourth. But neither development is likely to be sustained. In contrast to the rest of Asia, Japan faces a …
23rd November 2010
Consumer prices probably rose year-on-year in October for the first time since 2008, but this would not mark the end of deflation in any meaningful sense. Aside from the occasional spike into positive territory due to developments in commodity prices and …
22nd November 2010
Japan’s economy is on a roller-coaster ride. This year’s growth overall is likely to be the fastest of any G7 country, but GDP will almost certainly shrink in the fourth quarter. Such volatility, while not so unusual for Japan, will keep confidence …
16th November 2010
Japan's GDP growth in Q3 was comfortably above consensus, but the markets are right to be worried about its sustainability. We continue to expect the economy to contract again in Q4 as consumer spending drops back, exports struggle, and the recovery in …
15th November 2010
Monday's GDP figures for the third quarter should look good, with above-consensus growth of 1% (or more) quarter-on-quarter driven by domestic demand. However, the profile of the recent monthly data suggests that the economy will contract again in the …
Policy-makers and the financial markets may be focused on the risks posed by persistent deflation, but the latest surveys from Japan suggest that households there do not believe prices are falling and indeed that they would not be too bothered if prices …
12th November 2010
Machinery orders surged in the third quarter, supporting our view that a rebound in investment spending will contribute to an above-consensus increase in GDP in the official data released next week. The prospects for the fourth quarter, however, are less …
11th November 2010
Japanese consumers continue to grow more cautious, but the latest downtick in confidence is not unexpected given the weakness in other sentiment indicators and there are good reasons to expect sentiment to improve again shortly. In the meantime, …
10th November 2010
Japan’s Economy Watchers Survey (EWS) for October suggests that the recovery is faltering again in the fourth quarter after what we expect to have been strong (aboveconsensus) growth in GDP in the third. Bank lending also remains sluggish, although the …
9th November 2010
Now that the markets know the US Fed’s plans for additional QE, and these are presumably largely priced into the currency markets, any additional easing from the Bank of Japan will have a greater chance of weakening the yen. For this and other reasons, …
8th November 2010
The G20 Summit in Korea next week (11th – 12th) will be overshadowed by the fall-out from “currency wars”, hampering any attempt at the improved coordination of policies necessary to help rebalance the global economy. In particular, the US will find it …
5th November 2010
The rescheduling of the Bank of Japan’s next Policy Board meeting to Thursday and Friday this week was surely designed to provide an early opportunity to assess any market fall-out from the US Fed’s announcement tomorrow. We suspect that, other things …
2nd November 2010
The Bank of Japan’s decision to bring forward its November Policy Board meeting to the day after Wednesday’s FOMC raises the intriguing possibility that the Bank intends to respond to any additional quantitative easing in the US with further QE of its …
1st November 2010
Japan's manufacturing output fell in the third quarter, reflecting both weaker exports and the expiry of government car subsidies at home. The outlook for Q4 is grim. However, other parts of the economy are doing a little better, with household spending …
29th October 2010
The Bank of Japan’s decision to bring forward its November Policy Board meeting to the day after next Wednesday’s FOMC raises the intriguing possibility that the Bank intends to respond to any additional quantitative easing in the US with further QE of …
28th October 2010
Smaller Japanese businesses report that conditions are worsening, particularly in the manufacturing sector, which presumably reflects the more challenging global economic environment and the strength of the yen. Nonetheless, the mood is still less …
27th October 2010
The Bank of Japan’s Policy Board meets on Thursday and will almost certainly forecast that inflation will remain well below the new informal target of 1% until at least 2012. This does not necessarily mean, as many will assume, that there are no …
26th October 2010
Japan’s exports were broadly unchanged in the third quarter, marking an end to the string of large positive contributions to GDP growth from net trade. For now at least, consumer spending and investment appear to be picking up the slack, but the pressure …
25th October 2010
The surge in the yen and recent weakness in the export-oriented manufacturing sector have raised concerns that Japan may already be sliding back into recession. In contrast, our view is that the near-term outlook is brighter than generally appreciated, …
The expenditure breakdown released alongside the August activity index and the detail of the Bank of Japan’s Senior Loan Officer Survey both suggest that the economic recovery is finally spreading to investment. … Activity Index (Aug) & Senior Loan …
21st October 2010
