Oct. 05, 2013, 20:00 JST

A clear upturn in house prices

There is now a clear statistical evidence that Abenomics is at work in the real estate market in Japan. Residential Property Price Index shows that the residential property price rose by 2.1% YoY in May 2013. Regional breakdown shows that the upturn is not just in Tokyo but across the country. Historically, real estate market tends to follow the stock market with 6 months lag, and we expect the rise in residential property price to continue in the next 6-12 months horizon. Rising asset prices and its virtuous cycle with private consumption and investment is one of the key ingredient of the Abenomics policy. You can find more details on RPPI in our economic indicator page here. http://www.japanmacroadvisors.com/index.php?cat_id=60

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Our estimations are based on publicly available data released by the Ministry of Finance (MoF) as well as by the Bank of Japan (BoJ) . To estimate average duration and maturity values of Japanese Government Securities, following statistics are our main source of inputs.

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In April 2013, the 10% trimmed CPI index fell by 0.4% YoY, unchanged from March. When we include the second decimal points, it was a slight improvement from -0.40% YoY in March to -0.38% YoY in April, but it is still hardly a sign of inflation. When we compare our trimmed CPI measures with official CPI measures, we see that official CPI inflation measures are converging to the trimmed CPI measures. The deflation observed in the official CPI measures were mostly the effects of a few volatile items such as consumer electronics. -0.4% YoY seems to be the truer state of deflation in Japan.

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In March 2013, the 10% trimmed CPI index fell by 0.4% YoY, a slight deteriorating from -0.3% YoY in February. The result indicates that despite all the hype of Abenomics, reflation is not yet visible in the statistics. On the other hand, the results also indicate that the -0.9% YoY decline in the official CPI likely overstate the true degree of deflationary pressure in the Japanese economy. Our analysis shows that a mere few items out of the total of 588 items included in the CPI index have disproportionally influenced the overall result toward deflation. For example, TV set alone pushed the rate of inflation by 0.2% points.

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This past March was one of the best months for Japanese large scale retail stores. Their sales grew by 3.5% year on year (YoY), one of the highest growths since mid-1990s. On existing store comparison, the YoY growth was 2.4% YoY.

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Unemployment rate in Japan declined to 4.1% in March 2013, returning to the pre-Lehman shock level. Job offers to applicant ratio, our prefered indicator to measure the tightness in the labor demand/supply balance, also returned to the pre-Lehman shock level of 0.86 in this month.

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Industrial production in Japan shrunk by 0.1% month on month (MoM) in February, much weaker than the prior market expectation for 2.6% MoM expansion. Relative to production plans published a month ago, actual production were much weaker in electrical parts and devices (actual -5.0% MoM, planned: +14.5% MoM), information and communication machinery (actual: +2.0% MoM, planned: +9.0% MoM) as well as in transportation machinery (actual: +1.8% MoM, planned: +5.5%).

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Mr. Kuroda has his work cut out for him as he sees his first CPI inflation report since becoming the governor. The report shows that in February 2013, the headline CPI fell by 0.7% year on year (YoY), the largest decline since September 2010. The core CPI excluding food and energy shows an even deeper deflation at -0.9% YoY. The advance March CPI report for the Tokyo area shows that the deflation has likely continued into March. It shows the headline CPI deflation at -1.0% YoY and the core CPI deflation at -0.8% YoY.

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Feb. 14, 2013, 12:30 JST

Summary of the Q4 GDP results: Weak corporate investmentsrnJapanese economy contracted slightly by 0.1% quarter on quarter (Q0Q) in the October-December quarter (Q4) of 2012. The result was slightly weaker than the prior market expectation (+0.1% QoQ). rnThe main weakness came from private investment into capitals and inventories. Together, they pulled down the overall GDP growth by 0.5% points. Net export contributed negatively by 0.2% points. In comparison, there were strong demand from Japanese household and public sector. Private consumption grew by 0.4% QoQ, contributing 0.3% points to the overall growth. Public consumption and investment together contributed by 0.2% points.

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Feb. 13, 2013, 16:00 JST

Japanese manufacturers are planning to expand their output by as much as 7% between December 2012 and February 2013. Anticipated recovery in the Japanese exports seems to lie behind the planned output expansion. The manufacturing recession that started in May 2012 seems to have ended in November 2012 and Japan is now in a recovery period. How long will the recovery last? In an optimistic scenario, the recovery would last until April 2014 when the likely fiscal tightening takes Japan back into a recession. In a pessimistic scenario, fiscal half-cliff in U.S may cut short the recovery in the global economy in mid-2013.

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Jan. 25, 2013, 17:00 JST

In the last 12 months, CPI has been falling “only” by 0.1% year on year on average. Should the BoJ feel proud? We do not think so. As the BoJ often points out itself, “Price stability” should be achieved in the medium terms. On this measure, the BoJ has a very poor record. CPI fell 1.8% points in the last 4 years. The deflation may not be so bad if the wage were rising, but the average wage in Japan fell by 3.2% in the same time. Was the deflation and the real wage decline unavoidable amidst the global recession? In U.S., both price and wage rose by 7% in the same 4 years. Judging by the recent policy statement and Governor Shirakawa’s comment, the BoJ’s attitude toward 2% inflation target seem half -hearted at best. Unless PM Abe appoints an extraordinary leadership to govern the BoJ, Japan is likely to continue to be mired in deflation for some years to come.

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Jan. 24, 2013, 13:00 JST

Weakening yen is yet to result in a better export performance. Exports to China continue to plummet, while recovery in exports to US remain at a snail speed. Japanese imports remain stable, reflecting the stable domestic demand. Japan continues to run trade deficits equivalent to 2% of GDP in annual terms. In our view, trade deficits will remain a feature of Japanese international trade until the domestic demand weakens in mid2014 due to a likely fiscal contraction.

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Jan.13, 2013, 14:00 JST

In November, the core domestic machinery orders expanded by 3.9% month on month (MoM). The result was moderately above the prior market expectation and reassuring as the growth in November comes on top of the 2.6% MoM growth in October. Having said that, the level of the orders is still low and orders from manufacturers are still hardly increasing. The recovering trend is certainly welcome but it is yet too soon to feel bullish on domestic capital expenditure outlook for 2013.

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