It seems to be a bumper summer for loyal Japanese salarymen. Wages in Japan rose by 1.3% year on year in June, fueled by 3.3% rise in their summer bonuses. However, the talk of a good summer bonus may be painful for irregular workers in Japan, more than 1/3 of the total work force nowadays and mostly not eligible for bonuses. Read more..
The economic effect from the so called 28 trillion yen package is probably around 5 trillion yen, equivalent to 1% of GDP. The effect will be a short lived one in any case. As the government maintains its pledge to balance its budget by 2020, whatever the increase in spending in 2016, the government has to cut them right back in the following years. The stimulus was another misfired arrow, along with other growth enhancing measures that never materialized. Read more..
We think it is highly likely that the BoJ will remove the time limiting part of its inflation target framework in September. The change is inevitable as the BoJ currently have no appropriate tools to force the inflation to rise. The market may react negatively to the news though, as it perceives the change as a sign that no more easing is forthcoming. Read more..
The negative market reaction to the BoJ decision today was another evidence that the monetary policy in Japan is nearing its capacity limit. In our view, expanding ETF purchases to 6 trillion yen was a significant, even reckless measure. If the BoJ maintains the new pace of ETF purchases, a severe downturn in the equity market could deplete the capital of the BoJ in the near future. The BoJ has reached the end of its easing cycle and it knows it. Their policy statement today said they will conduct a comprehensive assessment of their policy effects at the next policy meeting. Read more..
Judging from the torrent of economic data releases in the morning of July 29, the Japanese economy had a buoyant month in June. The unemployment rate fell to 3.1%, the lowest rate since 1995. More surprisingly, industrial production in Japan seems to be on an expansionary path this summer, suggesting that the yen appreciation so far in the year is within the level manufacturers can cope with. Read more..