September trade data provided some moderately positive news for Japan. Japanese exports in September was up 6.9% year on year (YoY), the highest growth in the last 8 months. Exports to China was up 8.8% YoY, exports to US was up 4.4% YoY. After a seasonal adjustment, Japanese exports are at its largest level since October 2008. Read more..
A new hope is emerging that the corporate Japan is becoming more active in its capital investment. Core machinery orders, a leading indicator for the private capital expenditure in Japan, expanded by 4.7% month on month in August, marking the third consecutive monthly expansion. The outlook for corporate capital investment has been ambiguous. Various surveys, including BoJ Tankan, suggested that companies in Japan are planning to increase their capital expenditure, but there has been no matching evidences in the actual statistics. The latest machinery orders data alone are still insufficient to become positive on the outlook, but it does give a glimpse of hope that the private capital expenditure may start to contribute to the growth in Japan while consumers suffer under the weight of sales tax hike, both in 2014 and in 2015. Read more..
Tankan results were disappointing. The business condition DI deteriorated for most of business categories except for large manufacturers. The results show that for the majority of Japanese businesses, their profitability continued to deteriorate between June to September, on top of the large deterioration they suffered between March and June. Some may argue that yen weakness is hurting SMEs and non-manufacturers. Data from Tankan does not support such notion. Input price DI in fact improved for non-manufacturers between June to September. Instead, it was the decline in output price DI that seem to be hurting their profitability. In short, it is again the deflation that is hurting corporate profitability. Read more..
Judging by the flow of economic data released this morning, the Japanese economy seems to be regaining its balance. Retail sales seems to be recovering, the labor market remains tight, and the most assuringly, the wage growth seems to be slowly but consistently accelerating. However, this is no time for policy makers to relax. With another installment of sales tax hike around the corner, private consumption alone cannot deliver growth in Japan. Ideally, either export or private capital expenditure should start to grow, sharing the burden of lifting growth. Instead, Japanese manufacturing is in a technical recession with its production declining for two quarters in a row. In our view, the current state of the Japanese economy seem quite fragile to some downside shocks, not so dissimilar to its state in 2007. In this environment, it is crucial that the Bank of Japan shows its commitment to support growth in Japan, whatever it takes. To enhance its commitment, the bank should publish its outlook for its balance sheet in 2015 in the next policy meeting in October. Read more..
There is a mounting evidence that the Japanese economy is not inflating any more. In August, core consumer price inflation decelerated from 3.3% in July to 3.1%. The deceleration also likely continued into September. The advance CPI report for Tokyo area shows that the core CPI inflation decelerated from 2.7% in August to 2.6% in September. While it would be premature to start to worry about a return of a deflation, the apparent disinflation trend should be concerning to the BoJ. Read more..