The BoJ kept its policy unchanged on October 7. Listening to the press conference given by the governor Kuroda, it seems unlikely that the BoJ would decide to ease before the end of the year. Mr Kuroda continues to believe that there is an ongoing reflationary trend present in Japan. While he admits the recent weakness in the industrial production, he attributes it to factors outside Japan and downplays its significance by stating that the manufacturing industry nowadays accounts for only 20% of the economy. Moreover, he seems emboldened by the robust corporate profits and the apparent willingness of corporate managers to invest in Japan revealed in September BoJ Tankan. His optimism seems genuine and we do not think he will change his assessment unless some unforeseen and significant negative shocks shake his confidence. Read more..
September Tankan delivered a breeze of positive news for the Japanese economy. The business condition of Japanese non-manufacturers improved between June and September, despite the prior market expectation that it would deteriorate. The decline in energy prices is likely to have contributed to widen their profit margins. The capital expenditure plans of Japanese large corporations have also been revised up. The BoJ is likely to see the news as a supporting evidence for their optimistic view on the economy. Read more..
The chances are that the Japanese economy had a negative growth in the July-September quarter. The industrial production results for August and the projection for September suggest a sizable decline of 1.1% in the quarterly industrial production. In the last 15 years, out of the 20 quarters when we saw a quarterly decline in the industrial production, 17 quarters saw a concurrent decline in the real GDP. A negative growth in the July-September GDP will mean a recession, that is, two consecutive quarters of negative growth. This news of a probable recession in Japan deals a heavy blow to Japanese policy makers who have maintained positive outlook on the economy. Will they respond with easing policies? In our view, the news of a technical recession certainly raises the probability of a fresh easing by the BoJ, but we think they will still maintain their passive attitude in the immediate future. A further deterioration in the stock market, and perhaps more importantly a rise in yen could force them. However, for now, we think the governor Kuroda cannot muster a majority of the BoJ board to implement an additional easing. Read more..
In August, the year on year change in the Japanese CPI excluding fresh food turned negative, -0.1%, for the first time since April 2013. However, we do not think this headline alone will push the BoJ into an additional easing. While the headline was weak, details on the CPI report in fact support the notion that there is a moderately inflationary trend in the Japanese consumer price. Unless other economic indicators start to deteriorate markedly, we do not expect the BoJ to ease any time soon. Read more..
The net export is likely to have lowered the July-September quarterly GDP growth in Japan by 0.2% point, judging from the trade data published today. While we think it is still unlikely, but if Japan did suffer a negative growth in the quarter, it will be a good wake up call for the policy makers to rethink their growth strategy for Japan. Read more..