What's New Core inflation in Japan turned negative in March

In March 2017, CPI excluding fresh food and energy fell by 0.1% YoY, a first decline since 2013. The measure used to be favored by the BoJ, but probably no more. (April 28th)

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In the April 26-27 policy meeting, the Bank of Japan (BoJ) made minor adjustments to its growth and inflation outlook, but there were no changes in its generally cautious view. In the press conference after the meeting, the governor Kuroda was bombarded with questions on the exit strategy, but the governor flatly refused to provide any answers. In our view, the exit has already started as we see the BoJ starting to reduce its JGB purchase. In April, the net purchase of JGB was more closer to the annual pace of 70 trillion yen, rather than at 80 trillion yen.

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March 3 2017, 22:15 JST

On Borrowed Time

On the surface, Japan is having the best of its times. Corporate profits are at a record high and the unemployment rate is at its 22 year low. However, we think Japan is on borrowed time. Japan owes its current prosperity to an unsustainable monetary policy. In our view, the BoJ is likely to reach its limit before the end of 2018.

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February 20 2017, 18:00 JST

Japan doubled energy imports from US

The rising energy prices are starting to affect the trade balance of Japan. In January 2017, the trade surplus of Japan fell to 156 billion yen, equivalent to mere 0.3% of GDP in an annualized term. January 2017 also marks as the month Japan started to import LNG from the United States. As a result, energy imports from US more than doubled from a year ago. The news must be a godsend for the Shinzo Abe administration as it struggles to contain a potential trade war with US.

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February 2 2017, 20:50 JST

Trump is Right About Yen

The Trump administration is stepping up its accusation that Japan is manipulating its currency to its advantage. Unlike other accusations, this one is in fact on the mark. Weakening yen was a campaign promise of Shinzo Abe when he became Japan's Prime Minister in 2012. It is also a common knowledge among economists that the exchange rate is the main transmission mechanism through which the quantitative easing of the BoJ affects the economy. Lined up alongside Chinese yuan and Euro, the Japanese yen is the most vulnerable as it is indeed significantly undervalued. The threat to attack the currency policy of Japan should prove to be a great bargaining chip for U.S. to extract concessions from Japan.

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Japanese manufacturers seem to be in an expansive mood. In the last 5 months of 2016, Japan's industrial production and its exports rose by 4.0% and 3.9% respectively. The news could be a mixed blessing for the Japan though. With Prime Minister Abe due to meet President Trump on February 10, Japan does not want to give further ammunition to the accusation that Japan may be unduly benefiting from its trade with the U.S. In our view, Japan's position is at its weakest when it comes to defending the current weak level of yen. Japan's monetary policy has been implicitly targeting exchange rates in the last few years.

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