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Soaring input prices have kept profit margins of manufacturers below their pre-virus peak even as those of services firms have hit record highs. However, manufacturers will catch up before long. As we noted in a recent Weekly , the net profit margins of …
6th February 2022
The Bank of Japan today upgraded its assessment of inflation risks to “broadly balanced” for the first time since 2014. However, it reiterated its pledge to keep expanding the monetary base until inflation exceeds 2% and also signaled that it will keep …
18th January 2022
We expect GDP to return to its pre-virus path in the second half of the year as services spending finally returns to near-normal. However, the risks to that forecast remain tilted to the downside as consumers may remain cautious for longer. Meanwhile, we …
5th January 2022
While central banks elsewhere are becoming increasingly hawkish, the Bank of Japan kept policy loose today and is set to remain among the most dovish central banks for the foreseeable future . The Bank left its interest rate targets unchanged as widely …
17th December 2021
The pandemic has brought a halt to the last decade’s rise in Japan’s participation rate which had allowed the labour force to expand despite challenging demographics. Any post-pandemic recovery is likely to be short-lived: we expect the participation rate …
6th December 2021
Media reports that suggest that the Bank of Japan is losing control of short-term interest rates due to its “Special Deposit Facility” encouraging banks to park reserves at the BoJ are wide of the mark. The scheme does not threaten the viability of the …
22nd November 2021
Continued caution by the elderly is a downside risk to our upbeat forecasts for private consumption, but we’re already assuming that households won’t return to their old ways anytime soon. 90% of Japan’s seniors are now double-jabbed, but recent analysis …
3rd November 2021
The supplementary budget that PM Kishida will compile by year-end will probably contain only half as much fiscal support as was provided last year. However, given that government spending will still be significantly larger than it was in 2019 even as …
1st November 2021
The Bank of Japan shocked no one in keeping its interest rate targets unchanged today, a status quo we think will last for years. The Bank also revised down its growth forecasts for the current fiscal year and signalled that policy will have to remain …
28th October 2021
The weaker yen and higher energy prices will reduce the purchasing power of households a bit. But with the household savings rate still very high, this won’t prevent a strong rebound in services spending. Some commentators have been arguing that the …
26th October 2021
The continued weakness in Japan’s inflation is partly due to the recent plunge in mobile phone tariffs and the long lags between global energy prices and household utility bills. Indeed, inflation is set to rise next year. But more muted cost pressures …
12th October 2021
Incoming PM Kishida has provided mixed signals on fiscal policy, pledging a large near-term stimulus while retaining ambitious medium-term consolidation plans. Given that he blamed deregulation for widening inequality, structural reforms will move further …
29th September 2021
Japan’s reliance on fixed, long-term contracts for its natural gas supply should limit the impact on consumers of the recent surge in gas spot prices currently being felt most acutely across parts of Europe. Japanese liquefied natural gas (LNG) importers …
22nd September 2021
The Bank of Japan left policy settings unchanged today and while a new Prime Minister could appoint a more hawkish BoJ Governor, we expect the Bank to keep interest rates unchanged for years. As universally anticipated, the Bank of Japan kept its interest …
Kono Taro is emerging as the favourite to succeed Mr Suga as PM. While Kishida and Takaichi are viewed as safer hands by LDP party elders, the outspoken Kono’s popularity with the public gives him the edge on the eve of a general election where the ruling …
8th September 2021
The latest high-frequency data point to the relentless surge in new coronavirus cases starting to weigh heavily on consumer activity this month. And with full-blown emergency declarations to be expanded to cover around 80% of Japan’s economy from Friday, …
26th August 2021
With the Delta variant lifting new infections to a record-high, calls for a “hard” lockdown are growing. If that happened, services activity would fall further but we doubt that the government would shut down industry. And with households and firms now …
2nd August 2021
The surge in input prices caused by supply shortages is starting to show signs of filtering through into higher output prices. Combined with upwards pressure on services inflation from a “vaccine bounce” later in the year, we now expect underlying …
29th July 2021
The Bank of Japan today unveiled the details of its green lending facility, underlining that its focus is now moving away from addressing the pandemic towards longer-term structural issues . As universally anticipated, the Bank of Japan kept its interest …
16th July 2021
While new infections in Tokyo have picked up, the fourth state of emergency in the capital is partly a political move designed to placate fears that the Tokyo Olympics will trigger yet another virus wave. With the health situation in other prefectures …
12th July 2021
PM Suga unveiled his administration’s first mid- to long-term growth strategy – known as the “big-boned policy” – on Friday. While most themes have been carried over from the Abe administration, PM Suga’s economic strategy contains new angles such as a …
24th June 2021
While the Bank of Japan kept its major policy settings unchanged today and will continue to do so for the foreseeable future, it extended the deadline for applications to its emergency lending facility from end-September 2021 to end-March 2022. And it …
18th June 2021
Producer prices are rising the most in years, but this largely reflects global supply shortages that should abate as vaccines are rolled out. We expect consumer price inflation to average a muted 0.6% next year. The resilience of goods demand during the …
19th May 2021
The recent strength in Japan’s wage data largely reflects a compositional shift, as more lower-paid workers have dropped out of the workforce over the past year. With vacancies still far below pre-virus levels and firms no longer reporting severe staff …
10th May 2021
The pandemic has lifted the ratio of corporate debt to GDP to the highest level since the late-1990s and the Bank of Japan now fears that defaults could rise sharply in struggling sectors. However, there are several reasons why this is unlikely to saddle …
29th April 2021
The Bank of Japan kept policy settings unchanged today as widely anticipated. And by predicting inflation well below its 2% target all the way to FY2023, the Bank signalled that Governor Kuroda won’t start to tighten monetary policy before his current …
27th April 2021
The fourth virus wave has so far been largely concentrated in Osaka and a state of emergency declaration in that prefecture alone would not prevent national output from rebounding in Q2. However, as the surge in cases in Osaka is driven by more contagious …
19th April 2021
The Bank of Japan’s policy review today contained various nudges to policy levers but ultimately marked neither a tightening nor an easing of policy. Governor Kuroda was keen to emphasise in the press conference that widening the target band for 10-year …
19th March 2021
Japan’s manufacturers are not suffering from the severe supply shortages that are plaguing firms in other advanced economies. This reflects lessons learned from the Great East Japan Earthquake and a low reliance on imported components. Indeed, the surge …
10th March 2021
The fiscal support that Japan’s government provided during the pandemic wasn’t as large as headline figures suggest. Accordingly, the withdrawal of stimulus will be a smaller headwind to the economy than most expect, which is one reason we believe that …
2nd March 2021
The Bank of Japan is likely to widen the tolerance band around its 10-year yield target next month. The last time this happened, many saw it – wrongly in our view – as a form of policy tightening. It will be driven more by a desire to steepen the yield …
23rd February 2021
While Japan’s vaccine rollout won’t begin until late February, we are assuming that inoculations proceed rapidly enough for most of the vulnerable to be protected by the middle of the year with the result that the economy returns to pre-virus levels in Q3 …
2nd February 2021
Despite the headwind from the third virus wave, the Bank of Japan revised up its growth forecasts for the next couple of fiscal years. And while Governor Kuroda didn’t provide much insight into what to expect from the upcoming review due in March, we …
21st January 2021
It looks likely that a state of emergency will be declared in the Greater Tokyo Area over the coming weeks which could involve the closure of shops, schools and restaurants. While that will result in a fall in consumption, we still think that a rebound in …
4th January 2021
On its own, the draft budget for the fiscal year that starts in April points to a sharp tightening in fiscal policy. However, there are several reasons why the headline budget figures are overstating the severity of the upcoming fiscal drag. The draft …
21st December 2020
The Bank of Japan’s decision today to extend its emergency loan facility by six months didn’t come as a surprise. The announcement that the Bank would soon conduct an assessment of its easing strategy is more striking, but it appears unlikely to result in …
18th December 2020
The third supplementary budget announced by PM Suga today raises fresh government spending in response to the pandemic to around 12% of GDP. That lifts Japan back up the global fiscal support rankings and lends further support to our view that the economy …
8th December 2020
The surge in capital goods shipments in October and solid profit data for Q3 suggest that capital spending is ending the year on a strong note. We’re revising up our forecast for business investment this quarter. The budding rebound also bolsters our view …
7th December 2020
The Bank of Japan’s new special deposit facility won’t lift the profitability of struggling banks meaningfully, nor should it result in a rise in money market rates. However, it is another sign that the Bank is becoming more worried about the impact of …
30th November 2020
We now assume that one or more COVID-19 vaccines will be widely available in Japan next year, which suggests that the drag on activity from voluntary social distancing will come to an end. That should give a boost to GDP of around 1% spread over the next …
26th November 2020
Given that Japan doesn’t have existing free trade agreements with either China or Korea, it is set to benefit more than other participants from the recently signed RCEP deal. However, tariffs will only be lowered gradually so the impact on GDP growth will …
18th November 2020
We estimate that firms deferred around ¥17tn in tax and social security contributions during the state of emergency. Most of those deferrals will have to be paid back by mid-2021 but we suspect that the government will extend the deadline for struggling …
29th October 2020
The Bank of Japan today revised up its outlook for GDP growth for the next couple of years, reducing the already scant chances of additional easing even further. As widely anticipated, the Bank kept its short-term policy rate at -0.1% and its target for …
Recent court rulings clarifying the application of the government’s new “equal pay for equal work” law are unlikely to lead to higher labour costs for firms. Most firms already pay their irregular workers allowances for dependents as well as holiday and …
22nd October 2020
The Bank of Japan’s decision to keep policy settings unchanged today didn’t come as a surprise and we don’t expect incoming PM Suga to push the Bank into policy rate cuts. The Bank kept its policy rate at -0.1% and its target for 10-year government bond …
17th September 2020
Japan will very soon have a new Prime Minister. Close Abe aide Suga Yoshihide is the current front runner in the LDP leadership contest and would likely keep policy firmly on the course set by Mr Abe. But even if Abe critic Ishiba Shigeru were to win, we …
1st September 2020
The Bank of Japan’s recent purchases of Treasury Bills have yet to feed through into the money supply as the government’s deposit account at the Bank has ballooned. That will provide a further boost to the money holdings of households and firms but we …
31st August 2020
The slump in underlying inflation in Tokyo in August was mostly driven by subsidies to domestic travel as part of the Go To travel campaign. But even when we strip out the impact of those subsidies, underlying inflation has now started to slow and we …
28th August 2020
Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
27th August 2020
The money supply has recently been growing at the fastest rate in at least two decades, boosted by government giveaways and generous lending to non-financial firms. However, the expansion in the monetary aggregates falls short of the rates seen in other …
18th August 2020