Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
Reporting on key macro data at the time of release.
Real-time insight on key fixed income and fx markets.
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
- About Us
Repeats Story Initially Transmitted at 07:33 GMT Jan 5/02:33 EST Jan 5
By Max Sato
TOKYO (MNI) - For the Bank of Japan, the new year started with a slightly
brighter tone on the economic activity and sentiment fronts, but the road to
stable 2% inflation remains bumpy.
The New Year began with a sharp gain in the Tokyo stock market, the
lifeline for Prime Minister Shinzo Abe's inflationary policy mix that relies
heavily on large-scale monetary easing amid limited fiscal spending and the slow
progress in structural reforms and innovative investments.
With the stock markets rising and the yen remaining relatively weak,
business and consumer sentiment have improved. Job offers have been rising and
part-time wages have been growing as firms are trying to cope with increasing
--LABOR SHORTAGE CONCERNS
The Economy Watchers Survey sentiment index for Japan's current economic
climate in November rose 2.9 points to 55.1 from 52.2 in October, posting the
third straight month-on-month rise on firmer stock prices.
However, the outlook index on sentiment over the next two to three months
fell 1.1 points to 53.8 in November from 54.9 in October, marking the first drop
in two months. Some firms reported that higher fuel, material and labor costs
were squeezing their profits. Others complained that labor shortages were
forcing them to decline orders.
The outcome of the Watchers Survey for December conducted from Dec. 25 to
Dec. 31 is due on Jan. 12.
Data released late last month showed industrial output rose for the second
straight month while both retail sales and household spending rebounded. The
data indicated Japan's modest but sustained economic recovery will continue for
now, with the annual GDP growth rate hovering just above the economy's growth
potential estimated somewhere between 0.5% and 1%.
The latest median forecast for Japan's GDP growth by the nine-member BOJ
policy board is 1.9% for the current fiscal year ending in March before slowing
to 1.4% in fiscal 2018 and 0.7% in fiscal 2019. The board will update its
projections at its next meeting on Jan. 22-23.
--SALES TAX HIKE SCARE
The government plan to implement the second stage of the doubling of the
sales tax rate to 10%, which had been postponed twice by Prime Minister Abe in
political decisions before he called snap elections, comes at a sensitive timing
for BOJ policymakers, the majority of whom still believe the bank can achieve
its 2% inflation target "around" fiscal 2019.
If the sales tax is raised to 10% from the current 8% in October 2019, as
now planned, consumption is expected to show a large swing, with durable goods
spending rising fast in the first half of fiscal 2019 for the tax hike takes
effect and slumping in the second half.
The hike from 5% to 8% in April 2014, which was the first increase in sales
tax in 17 years, caused a plunge in consumption for a longer period than
anticipated by government and central bank officials amid slow wage growth. That
has made retailers even more cautious about raising prices and firms are still
reluctant to offer large increases in base wages.
The downdraft from the tax hike this time, which may be less damaging than
in 2014 due to a slightly smaller increase, is still expected by BOJ officials
to hit the economy and so could be a setback for the bank's struggle to lift low
inflation toward its elusive 2% target. The BOJ board now projects an average
core CPI rate of 1.4% in fiscal 2018, while many private-sector economists see a
lower rate of around 1%.
--COUNTING ON WAGE HIKES
A slight pickup in the consumer price index released on Dec. 26 is the last
piece of CPI data before the BOJ meeting this month.
At this point, there is no hard data to suggest that the board should lower
its core CPI forecasts again in January after revising its median forecast for
fiscal 2017 down to +0.8% in October from the +1.1% rate projected in July and
the one for fiscal 2018 down to +1.4% from +1.5%.
The national average core CPI (excluding fresh food) rose 0.9% on year in
November, the 11th straight year-on-year rise, with the pace of increase
accelerating from +0.8% in October.
Goods prices are up on higher import and labor costs while service prices
were flat, as many firms continue to resist price hikes amid tough competition,
absorbing higher materials and labor costs by investing in technology and
curtailing business hours.
But BOJ officials hope the pickup in the CPI, although slow, helps support
the move by some firms to raise wages for fiscal 2018 during annual
labor-management negotiations to be held in coming weeks. Some economists are
skeptical of any major increase, however, predicting firms will generally remain
Because wage increases are usually based on actual inflation the year
before, the BOJ remains hopeful that the higher inflation will trigger a rise in
The weak wage hikes agreed in April 2017 were based on weak consumer prices
in calendar 2016, when the consumer price index fell 0.1% on average. By
contrast, total CPI rose 0.4% on average in the first 11 months of 2017.
In theory, higher income supports higher consumer spending but many
households remain cautious in their buying habits amid concerns about the
sustainability of government social security and future salary levels.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: email@example.com
--MNI BEIJING Bureau; +1 202-371-2121; email: firstname.lastname@example.org