SEPTEMBER 18,2014, 18:00 JST

Stagnating imports suggest weak July-September quarter

According to the August trade data published today (September 18), the Japanese imports contracted by 1.4% in August from the previous month. Imports shrunk sharply after the sales tax hike in April and in August it stood at almost 10% below the recent peak in January this year.

For us, the news is a part of mounting evidences indicating that the Japanese economy remains depressed 5 months after the sales tax hike. Imports obviously reflect the strength of the domestic demand and they have a strong correlation with the GDP growth. We do not yet have conclusive information on Japan’s economic performance in the July-September quarter, but the growth could be much weaker than the current consensus of 4% annualized growth.


Source: MoF, Cabinet Office, JMA 


Japanese policy makers are starting to respond. BoJ governor Kuroda talking down yen in the last two weeks reflects his renewed concern on the economy. Economic Minister Amari also started to talk about possible stimulus measures, especially if they are still to go ahead with the sales tax hike in 2015. Will we see stimulus measures soon?


We will probably need to wait at least a few more months before policy makers finally announce any concrete measures on the fiscal policy side. The obstacle is the scheduled sales tax hike in 2015. If they are saying that they are so concerned about the economy, they need to address the question why they are not cancelling the sales tax hike.


With fiscal measures constrained, the burden is on the BoJ. In our view, the BoJ has following options. 1) Buy more assets, chiefly JGBs, 2) lower the policy rate to zero or negative, 3) implement additional guidances to assure the market that the policy remain accommodative in future. In our view, 3) is the easiest and the bank should implement it in the next policy meeting in early October. With less than 4 months left in 2014, the BoJ still has not given an explicit guidance for its balance sheet in 2015. The market has been suspecting that the BoJ may be inclined to halt the QE sometime in 2015. To suppress such anxiety, the BoJ should announce its outlook on its balancesheet for the end of 2015 to clarify its unwavering determination to maintain its QE until its inflation target is met. While the BoJ’s concern over its expanding balance sheet is understandable, it is no time for complacency for Japan’s central bank.