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Japan Economics Weekly

Japan Economics Weekly

Demographic woes persist, tourists waiting at the gate

An exodus of long-term migrants contributed to the 0.6% fall in Japan’s population last year but with border controls loosened since March net migration is bouncing back strongly. Even so, we still see GDP growth settling around 0.5% over the longer-term as a shrinking workforce offsets productivity gains. Meanwhile, Japan remains a highly popular tourist destination and once the onerous procedural requirements for entry are lifted, probably sometime in Q4, tourist arrivals and spending should rebound strongly.

12 August 2022

Japan Economics Weekly

The rise and fall of Japan's energy imports

Japan is still struggling to wean itself off fossil fuels despite a new government push to boost solar power. However, the country has become more energy efficient over the past decade, which has helped the economy weather the impact of rising global energy prices. Meanwhile, the government has recommended a 3.3% rise in the minimum wage, the largest move on record. While overall wage growth would get a boost over the next year, we think it would still remain well below the 3.0% level the BoJ maintains is needed to sustain inflation above its 2.0% target  

5 August 2022

Japan Economics Weekly

Bank of Japan won’t widen tolerance band any further

Long-term bond yields have dropped back in recent weeks which meant that the Bank of Japan had to work less hard to defend its 10-year yield target. Given that we no longer expect US 10-year Treasury yields to surge, our previous forecast that the Bank will widen the tolerance band around its yield target is no longer fit for purpose. And with yield differentials no longer moving sharply against the yen, the renewed strengthening of the exchange rate over the last couple of weeks has further to run.

29 July 2022
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Japan Economics Weekly

New Covid wave, more balanced inflation outlook

The government so far hasn’t responded to the surge in new virus cases to a record high with any restrictions, but the slowdown in mobility suggests that consumer spending will soften regardless. Meanwhile, the dip in inflation in June will be followed by a renewed acceleration over coming months. But with food and crude oil prices dropping back in recent weeks, the outlook for inflation is starting to look more balanced.

Japan Economics Weekly

Prospect of smaller budget deficits adds to BoJ’s woes

With tax revenues soaring and pandemic-related expenditure set to be phased out, the budget deficit will shrink sharply over coming years. However, the resulting decline in bond issuance will make it more difficult for the Bank to defend its 10-year yield target without further undermining the functioning of the bond market.

Japan Economics Weekly

Reshoring production bodes ill for profits

The surge in firms’ capital spendings plan for the fiscal year that started in April to around a record high could be due to firms finally undertaking projects that have been held back by supply shortages. But it could also be a strategic shift away from complex cross-border supply chains towards more domestic production. While that would probably be good for Japan’s economy, it would bode ill for corporate profitability if firms traded off efficiency for supply chain security.

Japan Economics Weekly

Recovery will continue to disappoint

The slump in industrial output and the stagnation in real retail sales in May has prompted us to lower our estimate of Q2 GDP growth. While the easing of the lockdown in Shanghai will contribute to a rebound in motor vehicle output over coming months, the bigger picture is that supply shortages remain intense. And with external demand softening, Japan’s economy won’t recover as rapidly this year as most anticipate.

Japan Economics Weekly

Respite for BoJ doesn’t weaken case for a policy tweak

Pressure on the Bank of Japan’s Yield Curve Control framework eased this week. On the campaign trail for the Upper House election, where inflation has emerged as a key concern, Prime Minister Kishida said that monetary tightening would do more harm than good. Even more welcome for the BoJ, pressure emanating from the bond market has dropped back too. It had to buy less than a tenth as many JGBs this week as last. Some might feel that this reduces the need to shore up the policy framework. But a respite provides a window in which to make it more resilient.
Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

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