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Japan Economics Update

Japan Economics Update

The implications of an escalating Taiwan crisis

The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant on China both as a source of imported inputs as well as a destination for exports, while major disruptions to semiconductor production in Taiwan would severely restrain Japan’s manufacturing industry despite its smaller trade links with China.

10 August 2022

Japan Economics Update

Consumption to remain tepid despite fiscal transfers

Real disposable household incomes will continue to be propped up until mid-2023 by fiscal transfers intended to offset the impact of virus disruption and rising inflation. But spending will continue to be held back as consumers remain cautious amid heightened economic uncertainty. Drop-In (Thurs, 28th July): Our Emerging Asia and China teams will be discussing what lies in store for the region’s exporters as global recession risks rise. Register here to join this 20-minute online briefing.

27 July 2022

Japan Economics Update

Widening of tolerance band not off the table yet

The Bank of Japan didn’t concede any ground to bond traders today but we still think there’s a good chance that it will widen the tolerance band around its 10-year yield target.

21 July 2022
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Japan Economics Update

Russian gas export ban would hold back recovery

If Russia decided to end all exports of natural gas to Japan, we suspect that Japan’s GDP would fall by around 0.5%. However, the hit could be larger as there is now less scope to reduce energy usage than after the Great East Japan Earthquake and a bigger risk that already stretched supply chains break.

Japan Economics Update

A reprieve for Yield Curve Control

The Bank of Japan gave no ground at all to bond traders today as it left all its major policy settings unchanged. Governor Kuroda was resolute in claiming that Yield Curve Control has no limits in his press conference. But the likelihood is that defending the current ceiling on 10-year yields will require bursts of heavy JGB purchases. To prevent its bond holdings swelling to unsustainable levels, we think that the BoJ will choose to widen the tolerance band from ±0.25% to ±50% before long. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

Japan Economics Update

BoJ to raise ceiling on 10-year yields

The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the BoJ will raise the ceiling on long-term interest rates from 0.25% to 0.50% before long, buying itself a respite from pressure on JGB yields and on the yen.

Japan Economics Update

Are the demographic headwinds strengthening?

A falling fertility rate and declining employment among retirement age workers pose downside risks to our long-term forecasts for Japan’s labour force and GDP growth. However, with the female participation rate still climbing from record highs and job openings for older people set to pick up as the economy shakes off the pandemic, we’re sticking to our forecast of (only) a 17% fall in the labour force by 2050.

Japan Economics Update

Weaker yen won’t provide a big boost to net exports

With Japan’s terms of trade set to improve only modestly and interest rates differentials moving further against the yen, we expect the exchange rate to fall to 140 against the dollar by year-end. But this currency weakness will provide only a small boost to Japan’s net export volumes.

19 May 2022
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