The stock market may have liked the BoJ decision today as it decided to go easy on banks. However, we are doubtful if the positive market reaction would be sustained. In our view, the BoJ is effectively tapering its quantitative easing policy. By dropping two year time-limit to achieve the 2% inflation target, the BoJ will be less aggressive in its efforts to reflate the economy in future. By stepping away from negative interest policy, the BoJ is tying its hand to counter future yen appreciation. One issue is clear though. The BoJ has reached the end of the QQE road. It is no longer pursuing quantitative easing. At this point, the BoJ has two alternatives. One is to become passive, leaving the reflation effort to the government. The other is to somehow find a way to continue reflating the economy, perhaps by exploring a combination of fiscal and monetary policy tools. Today's decision indicate that the BoJ may be choosing the passive road, but it does not seem like the nature of governor Kuroda. We will see. Read more..
In their policy meeting on September 20-21, the BoJ will be essentially admitting that they can no longer pursue 2% inflation rate target as ardently as they have been. The financial market will probably react negatively as it perceives the change as a step toward tapering. In our view, the result could be similar to what we observed in the US â€śtaper tantrumâ€ť in 2013. Read more..
In the April-June quarter, corporate profits in Japan declined for the third consecutive quarter. The appreciation in yen is an obvious reason, but the weak domestic demand, especially that of private consumption, lies in the background. Corporate capital expenditures kept growing, but it is clearly losing momentum. Despite the surge in corporate profits in the last 3 years, Japanese corporate managers are diverting far less than usual to investments, reflecting their persistent pessimism in the long term outlook of the Japanese economy. Read more..
In cooperation with our partner in research, Europacifica, we are holding a conference call on The End of Kurodanomics on September 8. In our view, the Bank of Japan is likely to be forced to taper its Quantitative and Qualitative Easing program within the next few years. If so, the consequences could be disorderly. On this call, we examine the sustainability of the QQE program, economic and financial consequence of a sudden stop to QQE and its implication to financial investors. Read more..
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..