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..
Made in Japan is making a comeback. Encouraging companies to invest and produce in Japan has always been a core message of Abenomics. More than 2 years into Abenomics, companies seem to be starting to follow the lead. Export volumes started to grow robustly in the last 4 months of 2014. Industrial production is picking up. Now, we are finally seeing some sign of expansion in the private capital spending. Core machinery orders, a leading indicator for the domestic capital investment, grew by 8.3% month on month in December. That alone is not conclusive, but in combination with anecdotal stories and survey results such as BoJ Tankan for capital investment plans, we think the balance of evidence points to much firmer outlook in private capital investment. Expansion in production activities should also entail larger demand for labor. In our view, the labor market in Japan is already at a full-employment. Additional demand for labor should help fuel wage inflation in Japan. We expect wage inflation to exceed 1% by the end of 2015 and 2% inflation target to be reached in 2016. Read more..
The news from the December wage report was encouraging. Regular wage rose by 0.4% year on year, accelerating from 0.1% in November. While the year on year growth is still pitiful, it is relieving to confirm that the wage disinflation that took place since last summer was short-lived. We expect the wage growth to accelerate in the next 12 months, rising above 1% year on year by the end of 2015. The unemployment rate has declined to 18 years low and it is a matter of time that the Japanese companies start resorting to raising wages to fill their vacancies. Read more..
Looking at the December labor market data today, we felt we could almost hear the sound of the labor market tightening in Japan. In December, the unemployment rate fell to 3.4%,18 years low, and the job offers to applicant ratio rose to 1.15, 23 year high. Even more remarkably, new job offers to applicant ratio rose as much as 0.13 point to 1.79. A single month rise of 0.13 point has not happened in Japan since 1976. As we pore over the data, we see that while job offers are certainly robust, it is also the shrinkage in the labor supply that is causing the labor market to tighten. While is the labor supply shrinking? A simple reason. In 2014, Japanese population in the age bracket 15-64 shrunk as much as 1.2 million persons. In our judgement, the tightening in the labor market is likely to even accelerate through the course of 2015. Encouraged by yen weakness, manufacturers are finally starting to expand their production in Japan and they require more workers in 2015. Where does it lead to? Wage inflation. There are pundits who argue that wage simply cannot rise in Japan. They need to open their eyes and look at the history beyond the last 20 years. In 1980s, wage was rising at an average rate of 3.7% in Japan. Wage inflation merely lags behind the economic activities and inflation by a year or two. In our view, the 2015 is likely to be remembered as the year wage started to rise. Read more..
The news from the December trade data was encouraging. Japan's export was up 12.9% year on year, the highest growth rate for the past 12 months and beating the prior market expectation. While the export volume is not expanding by much, the weak yen is fattening up the profit margin of Japanese exporters to a historical high. The high profitability is enabling manufacturers to raise the wage of their employees. In November, the average wage growth among manufacturing workers were 1.5% year on year. In our view, it is just a matter of time that the wage growth would spill over to other industries. Read more..