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While the Bank of Japan’s JGB holdings have started to shrink and will continue to do so now that Yield Curve Control is over, we think that the normalisation of the Bank’s balance sheet could take up to a decade. While shrinking central bank demand for …
26th March 2024
While most of the recent pick-up in services inflation has been driven by just a handful of components, there’s been an upward shift in the distribution of price changes across the CPI basket. However, even if wage growth settles at higher levels than …
15th January 2024
The recent sharp fall in Japan’s ratio of public debt to GDP reflects one-off factors that won’t be sustained. While the influence of rising bond yields on the trajectory of the public finances will largely be offset by higher inflation and nominal GDP …
8th January 2024
The recent period of high inflation in Japan has kick-started a virtuous cycle between wages and prices. If inflation expectations remain elevated and structural forces push up the neutral rate of interest over the coming years, monetary policy will …
27th November 2023
During the past decade, the global economy has transitioned out of an era in which globalisation was the key driver of economic and financial relationships into one shaped by geopolitics. Previously, most governments had believed that closer economic …
16th November 2023
With wage growth set to strengthen further over the coming year, we think the Bank of Japan will soon have sufficient confidence in the sustainability of higher inflation to end negative interest rates . The Bank of Japan has been arguing that wage growth …
1st November 2023
Japan bulls have proposed a range of explanations to justify the outperformance of the TOPIX relative to other equity indices over recent months. While there are some signs that firms are enjoying stronger pricing power, we aren’t convinced that a …
24th July 2023
Japan’s carmakers face an existential threat from the emergence of cheap EV exports from China. Even in a benign scenario where carmakers eventually jump on the EV bandwagon, we suspect that they would have to rely on battery technology from China and …
8th June 2023
Japan’s large corporate sector surpluses are a key source of deflationary pressure. Corporate savings surged in the 1990s, primarily because net interest payments slumped, and have since remained stubbornly high. Unfortunately, workers have benefited …
2nd May 2023
Note: We discussed our revamped FCIs and took your questions on global financial conditions in a 20-minute online briefing on Thursday, 20 th April . Watch the recording here . We have revamped our financial conditions indices (FCIs) for advanced …
18th April 2023
The yen may have bottomed out against the dollar, but it is likely to remain weak for some time. That should boost Japan’s economy as higher revenues from exports and from overseas subsidiaries outweigh the resulting increase in import costs. Winning the …
2nd August 2022
We don’t expect the Bank of Japan to tighten monetary policy meaningfully but, with inflation about to breach 2%, what if we are wrong? The direct impact of higher interest rates on the corporate sector would be manageable, but a stronger yen would weigh …
18th May 2022
A perfect storm of surging house prices, a further worsening of supply shortages, and a pick-up in labour mobility would be needed to cause an inflation surge in Japan. Even if inflation did reach 2%, this wouldn’t necessarily trigger a policy response by …
8th February 2022
There are good reasons to think that the natural stalling in globalisation underway won’t do much damage to Japanese manufacturers. And while an abrupt severing of supply chains between China on the one hand and the US and its allies on the other would be …
21st September 2021
Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to …
29th June 2021
We think that inflation in Japan will remain subdued while the pandemic will result in a rise in US inflation to above the pre-virus pace. With both the Bank of Japan and Fed likely to remain inactive for some time, the resulting real interest rate …
13th November 2020
Japan’s incoming Prime Minister Suga Yoshihide has said he will “inherit Abenomics” and has been keen to emphasise that not much will change. As such, a major shift in economic policy is not on the cards. However, there are some apparent differences in …
15th September 2020
We do not expect the coronavirus crisis to undermine Japan’s long-term prospects. Capital accumulation will slow but there shouldn’t be a big impact on the supply of labour. And given that the response to the pandemic may end up lifting productivity, we …
23rd July 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Premature fiscal policy tightening is part of the reason why inflation did not gain much momentum after the BoJ launched large-scale quantitative easing in 2013. But the main reason why inflation has remained stubbornly low is that the huge expansion in …
23rd June 2020
The profitability of Japan’s regional banks is likely to deteriorate further over the next few years. However, there’s little evidence of asset price bubbles and corporate balance sheets have continued to strengthen. In our view, even a shock akin to the …
19th February 2020