The batch of economic data released on March 27 in Japan looked quite chilly, even cold. The 1.8% decline in retail sales in February was quite awful, and the sharp decline in new job offers to applicant ratio was alarming. On a closer inspection though, the data look somewhat warmer, say, lukewarm. The decline in fuel sales explains the decline in retail sales. Department store sales in fact had the best year on year growth in the last 11 months. We also found that the sharp decline in new job offers to applicant ratio could be a statistical glitch. All in all, the set of data from February was disappointing, but not so disappointing as for us to reconsider our upbeat outlook on Japan. We continue to think that the labor market in Japan is already in full employment and we are likely to see more visible sign of wage inflation by the end of 2015. Japanese corporations are already enjoying the fattest profit margin in many decades and corporate managers will likely expand their capital investment in 2015, fueling the growth in Japan. There is no need for the BoJ to ease. We think there is a high chance that the BoJ will achieve its 2% inflation target on the back of the rising wage inflation. Trying to bring such moment forward risks accelerating the growth too much, exposing Japan to a risk of excessive inflation in future. Read more..
In February 2015, exports from Japan grew by only 2.4% year on year, a significant slowdown from 17.0% year on year growth registered in January. The slowdown is largely due to the Chinese new year effects, but some of the slowdown should be regarded as genuine, stemming from the weakening in the economic activity in China. In February, the export volume from Japan to China hit the lowest level since the Lehman shock episode in 2008-9. On the import side, while the import value declined in February, the decline is entirely due to the fall in commodity prices. The import volume in fact rose for two consecutive months through January and February, a reflection of an acceleration in the economic activity in Japan, in our view. Read more..
The wage inflation seems to have finally arrived in Japan. In January, regular wages rose by 0.9% year on year. It may seem pitiful for an international observer, but in Japan it is the highest rate yet for well over 10 years. In our view, this is only the beginning of goods news for workers in Japan. Companies are already struggling to find workers. In January 2015, there are almost twice as many new job offers as new job seekers. We expect the wage inflation to gradually accelerate through the course of 2015-16. Read more..
The last quarter of 2014 was the most profitable quarter for Japanese companies in the last 30 years. Collectively, they made 18 trillion yen, equivalent to USD150 billion in the quarter, the largest profits ever made in one quarter. Perhaps more significantly, their profit margin was the highest in 30 years. Manufacturers did particularly well, with their profit margin the highest in 60 years, going back to 1954. Moreover, they are likely to do even better in the first quarter of 2015. The real export grew by 5% month on month in January. The falling commodity prices mean their profit margin must have widened too. For now, the manufacturers seem to be racing ahead, but their high profitability is likely to have a positive ripple effects throughout the Japanese economy in the coming quarters. 2015 is looking quite rosy for Japan Inc. Read more..
We now see the Japanese economy growing by more than 1% in 2015 and by more than 2% year on year in 2016. We see three important factors that brightens our economic outlook. They are, the decline in commodity prices, the sign of robust growth in exports and the sign of pronounced tightening in the labor market. The decline in commodity prices brings a sizable saving for the Japanese households and corporates, worth 0.7 to 1.4% to GDP. Export volume has grown by 12% in the 5 months and the increased exports should exert positive ripple effects throughout the economy. With the ongoing tightening in the labor market, the unemployment rate will soon breach the NAIRU rate and will cause a wage inflation. With such bright outlook for the economy, there is hardly any need for the BoJ to implement additional easing. Read more..