Japan grew by 0.6% in the January-March quarter, well above its potential quarterly growth of 0.1-0.2%. However, is it robust enough to comfort the BoJ that its 2% inflation target will be full-filled in 2016? Hardly.While we think it is achievable, any unexpected economic setbacks in the next 12 months could derail its achievement. If the growth turns out to be disappointing in the next two quarters, the BoJ should implement additional easing in the fall of 2015. Read more..
BoJ governor Kuroda was unusually evasive in the press conference after the policy meeting today. He declined to comment neither on yen, stock market nor on AIIB. He gave no clues as to when and how an eventual exit from QQE could be made. However, he was crystal clear on his determination to maintain the 2% inflation target, describing it as the origin of the current BoJ policy. That puts the speculation that the BoJ may lower its inflation target to rest. BoJ delayed the timing when it aims to achieve the inflation target to mid 2016. That is wise. However, we also note that a failure to reach its target in 2016 will expose Japan to a situation where Japanese public finance could no longer be viewed as sustainable. Read more..
Japanese export growth is failing to gather speed. In real terms, the quantity of exports in March is merely up 2% from the average of 2014 and still well below the prevailing level in 2012. By region, export to China seems particularly weak, with its quantity index trending down in the last few years. The results must have been a shock for the BoJ governor Kuroda. The weak yen was supposed to bring in stronger exports and capital expenditure, leading to a formation of an inflationary pressure within Japan. While we have seen no concrete evidence that this mechanism will not work, the time is running out for the BoJ. Unless we start to see signs of stronger growth momentum in the next 6 months, the BoJ may need to consider embarking on another round of stimulus. Read more..
In 2015, 86.7% of university new graduates in Japan seeking employment received at least one job offer by February 1. It is a significant improvement from 82.9% last year and the highest rate since 2008. By gender, we see that the offer rate is now higher for female graduates than for male. In 2015, the job offer rate for female new graduates was 88.3%, the highest since the survey started in 1997. Is the Womanomics of Prime Minister Abe at play? May be. However, we think the long term change in the economic structure of Japan, rather than policy measures, is behind the rise in the job offer rate for female graduates. Read more..
Judging from the BoJ March Tankan results, the combination of the weak yen and falling commodity prices are apparently not enough for Japanese manufacturers to fully restore their profitability. In our view, the cost of an additional monetary easing still outweighs its benefit and the BoJ should sit tight. But if the incoming economic indicators in the next 6 months fail to deliver a picture of a growing and reflating economy, policy makers may need to ponder what stimulus measures are appropriate. Not meeting the 2% inflation target in 2015 is perfectly defensible in light of the falling commodity prices, but the BoJ will be putting its credibility on the line if the target is not met even in 2016. Read more..