What's NewLabor market continues to tighten in Japan.

In June 2017, the unemployment rate fell back to 2.8% in June, the lest in 23 years. While it is taking longer than expected to the tightness in the labor market to ignite a wage inflation, we do not think the timing is far (July 28th)

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Recently published reports

Toward the end of the press conference on July 20, Governor Kuroda seemed somewhat exhausted. After having postponed the likely attainment of 2% inflation target from 2018 to 2019, the prospect of another few more years fighting off reporters criticizing him for not achieving the inflation target was perhaps a heavy weight on his sentiment. In our view, perhaps he does not need to. While we share his sentiment that continuing on the current path is the correct path and achieving reflation may not be more than a few years away, we fear that Governor Kuroda may be carrying too much negative baggage for the BoJ to see through its reflation efforts.

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July 14 2017, 20:25 JST

Can Abe recover his popularity?

In July, Prime Minister Abe's approval rate fell to 34%, the lowest polling results since he became the PM at the end of 2012. Can he recover his popularity and sustain his Abenomics policies? The economy is on his side, as the Japan is likely to have enjoyed 6 quarters of consecutive positive growth by this April-June quarter. However, past relationship between the economy and the survival rate of prime ministers suggest that economy alone will not save a government. If Mr Abe is to lose power, it will have a profound and destabilizing impact to the Japanese economy.

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BoJ Governor Kuroda gave somewhat straighter answers in the press conference. He shared his assessment that BoJ can control the yield curve with less JGB purchase as the liquidity in the JGB market dwindles. Officially, the BoJ has no tapering strategy, but the direction to reduce its JGB purchase is becoming clearer.

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The Japanese economy had a robust and well-balanced growth in the first quarter of 2017. It is also remarkable that Japan is continuing on the 5 quarters of positive growth streak. Thanks for the robust growth, the output gap, a potential source of inflationary pressure, is turning positive. If Japan manages to continue to grow at the current pace pace for 2 to 3 more years, there is a hope that Japan can achieve its reflation goal.

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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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