Sunday, February 2, 2020

Bank of Japan January Meeting Summary: Part 1

http://www.boj.or.jp/en/mopo/mpmsche_minu/opinion_2020/opi200121.pdf


Commentary on the Bank of Japan policy meeting:

Part1: Economic and Financial Developments:

Economic Developments:12 points

1. Moderate expansion of the Japanese economy: The Japanese economy always seems to be in a moderate expansion mode. The Japanese economy maybe has become too mature to ever move past more than just a moderate growth rate.

2. Global economy and recovery: Before the virus outbreak, this was true, the global economy was headed toward a recovery trend. Now with the virus situation, the trend may change somewhat.

3. Overseas economy risks lessoning: Again before the virus situation, it seems the trend was improving. The last sentence mentions continued firm domestic demand, is helping the economy. Yes, domestic demand has never 100% been bad, its just not what some would want, but its always been firm or stable for the most part.

4. Japan economy expanding despite the global situation: We have to read these very carefully, as they just might be opinions of the participants in the meetings, as there seems to be differing ideas here. For example this one says the economy will continue to expand but the global economy is not so good and that domestic demand is limited. Yes, true, domestic demand is not all of an economy, but its a large but and it is somewhat stable, so the idea that domestic demand can pull an economy through a global situation is always a question mark in many economies.

5. Again a similar but different idea here: Stating domestic demand is firm, or stable, and the economy is expected to maintain a moderate growth rate, and then along with continued needed measures of the Japanese government.

6. Continued moderate expansion: The economy is likely to grow about the same pace as its potential. That is a very good idea. The potential of the Japanese economy to grow more than 1% to 1.5% maybe is all that can be expected for now, or ever. Then the idea of slowdown in overseas economies always important to watch. Very true as no economy is alone these day, all are very much interconnected.

7. Government economic measures: Expected to have positive effects. But the continued risk of the consumption tax remains a part of the idea and the BOJ should continue to watch the situation.

8. Difficult to remain optimistic: Again maybe differing members at the meeting giving their ideas. Although the US/China trade deal have improved along with the BREXIT situation, according to this idea, Japan's economic indicators since last October have not been favorable. Yes but Japan seems to maintain a moderate growth despite the indicators.

9. Four ideas here: 1. The propensity to consume; will it continue or decline because of the consumption sales tax. Well if we go back to 2014, we saw the 2nd quarter consumption decrease but then went back to normal as consumers got use to the tax hike from 5% to 8%. I would imagine the same here from 8% to 10%, consumers will eventually get used to the extra 2% over time. 2. Financial markets will remain steady despite only modest economic activity. In reality, the economic activity can be both modest and robust at the same time. Japan is still the 3rd largest economy in the world. Yes its not where is should be but its very stable with moderate growth. 3.  Manufacturing and the rest of the economy. Japan is sill moving from an manufacturing economy to more of a services economy is correct. 4. Short term inflation risks, meaning hits from the consumption tax, will not affect medium to long term growth. Yes consumers will get used the increase in the sales tax and consumer spending will be normal but usually never what some want.

10. Consumer spending indicators are weak compared to 2014. Yes, that seems to be true and how long exactly before consumers begin to get back to normal consumer spending is correct. The problem may have been, last September the media seemed to go crazy in Japan almost a hysteria maybe frightening consumers about how much or how bad the consumption tax would affect them. Maybe consumes still haven't gotten used to the extra 2% just yet.

11. Retirements seem to be on the rise: The idea is that companies have the excess profits to provide for the retirements and the ideas, for those that want, there are plenty of extra jobs now available in the economy to change jobs as needed or wanted.

12. Too many routine task jobs in Japan: There, according to this idea, compared to the US and the EU there are too many routine task type jobs in Japan and the rise of AI and automation could create problems in the future. It should be noted, somewhat, how many of these so-called routine task jobs are customer service type jobs where customers rely heavily on person to person customer service. Despite the increase in the 4th industrial revolution, person to person customer service still should be a major part of any society and economy. People want to see people, not just robots, for the most part.

To be continued......in part 2

© 2020, Tom Metts, all rights reserved

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