Bank of Japan View: Updated September 25 2024

 

Bank of Japan keeps rates on hold, Ueda tempers another hike speculation

Article source:  https://mainichi.jp/english/articles/20240920/p2g/00m/0bu/022000c

Ideas:

The Bank of Japan, usually is very conservative and doesn't want to upset the financial markets with any kind of action. Do no harm is a good way to describe how they do things compared to the US Federal Reserve, which increased the key rate a lot, which had a lot of side affects on the US economy, even though it might have helped to bring down inflation.

The Bank of Japan most likely is not going to increase the rate this fall, as they are watching the Japanese economy very carefully to see if it can get back on track and all economic indicators it watches are in line.

But if they do increase the rate, it might be no more than 0.25 percent like in July, as they don't want any real side affects that might cause harm to the Japanese economy.

The weak Japanese yen, maybe more than inflation is the real challenge for the Bank of Japan. But at the same time there are positives for a weak yen that can't be ignored and or course there are real negatives.

So the Bank of Japan has a find a balance between the positives and negatives of the weak Japanese yen. 

Does the Bank of Japan continue with the weak yen or continue to let it be weak, as it helps Japanese exporters, and Japanese overseas investors, and it helps foreign tourists, as they can buy more in Japan.

But it hurts importers and the weak Japanese yen increases import prices, so the Bank of Japan has to decide what is best for the Japanese economy overall.

Most likely the rate increase is going to be the first month of the new year, but you never know as it could be in December if the Japanese economy improves enough for the Bank of Japan.

The Japanese economy just doesn't increase or grow that much, as maybe be described as stagnant for a very long time. So the Bank of li Japan has to be concerned about if and when the Japanese economy can get back to some kind of normalcy or sustained growth, even if the growth is only 1 percent.

The weak Japanese yen is causing some havoc among some sectors in the Japanese economy, but at the same time is a boom for some in the Japanese economy too. 

Ask the hotels, restaurants, department stores and so on who mainly cater to foreign tourists if they like the weak Japanese yen. 

Financial markets, globally, are just too sensitive about everything, and never take a long term view or a big picture view, as they only think about now and not tomorrow or next week or next month, or next year.

Many years, ago, for example, Japanese companies could make long term plans and if they had a not so good quarter it was not the end of the world as they were focused on the long time and not what happened in one specific quarter.

But these days, because more large Japanese companies have significant shareholders, and shareholders only care about today and don't see things long term, and as a result, many Japanese companies have scrapped long term plans and focus on quarter to quarter to please the shareholders.

Markets remain in a unstable position, not so much about what the BOJ has done but because, again, they are just too sensitive about everything, They are like "snow-flakes", and react to everything they don't like.

But the BOJ is in a no-win situation as anything they do the markets are going to react, whether some good for Japanese economy or something not so good, the financial markets don't care, they just want things their way, even though the BOJ tries to improves things.

Again, the BOJ seems to be more sensitive to the markets that the US Federal Reserve, who seems to be a little more detached from the markets while the BOJ seems to want to keep the markets calm more than the Federal Reserve.

The Bank of Japan doesn't really have any room to cut its rate as its rate is almost at zero or 0.25 percent, so it must increase the key rate to try and get Japanese yen back to where the US key rate is or the EU central bank is or the where the Bank of England is, but its going to take more rate increase, for example to reach the US rate of 3 to 5 percent or percentage points.

The BOJ has a long way to go, and remains to be seen how long, if ever, the BOJ will get the Japanese rate in line with other advanced economies, or if they even want to do it.

It take several years, if even that for the Japanese rate to be equal with the other advanced rates, but the BOJ just not want the rate to be equal, as the weak Japanese yen might have more positives for the Japanese economy than negatives as this time.

Again, the weak Japanese yen, has both positives and negatives, and yes, the BOJ might be leaning toward keeping the yen weak, but it might try to tweak it some to help importers ad inflation related to the weak Japanese yen, and have a more balances Japanese yen, if that is even possible.

The weak Japanese yen has brought to Japan record foreign tourists and the weak yen gives them more purchasing power, and of course helps the hotels, restaurants, and even the Japanese convenience stores where many foreign tourists go to.

So the BOJ of course sees all of this, but at the same time, there is a significant segment of the Japanese economy who never see foreign tourists or get any of the business, so the weak Japanese yen might not be good for them.

So, again, the BOJ has to find a balance that helps those who never see any business from foreign tourists, but feel the affects of the weak Japanese yen, and the record number or tourists that help many Japanese businesses in Japan.

Of course the Bank of Japan is going to say its concerned about the weak Japanese yen, but at the same time it knows, it helps a significant segment of the Japanese economy too.

The Bank of Japan is always going to say what it needs to say, and again, to appease the financial markets so that they don't get too upset about what they say or do.

Yes, inflation, for many in the Japanese economy is not good and should be controlled, as much as possible, bu there are just too many variables acting at the same time, for any central bank to control, especially the Bank of Japan.

The Bank of Japan might not do anything until the LDP election is finished as they don't want to interfere with anything that might have an affect on the election. 

Even though it ended it negative rate policy in March, don't expect the BOJ to follow what other central banks do as they seem have their own strategies for how to manage and economy.

Even during the pandemic and after it really follow what the US Fed did as whenever the US Fed does something, the other central banks seems to follow.

Have a nice day!

Japan GDP Increases: Updated August 27, 2024

 

Japan's GDP grows 3.1% in April-June as consumption rebounds

Article Source:  https://mainichi.jp/english/articles/20240815/p2g/00m/0bu/006000c

Ideas:

Japan's GDP seems to be on roller coaster ride lately with a couple quarters up and then a couple quarters down, as it not very consistent.

The inflation-adjusted annual rate is just what would happen if the Japanese economy grew at the same rate each quarter, but that is usually not the case as its often very inconsistent.

Private consumption or private spending is never where it should be in Japan as Japanese households never spend like US consumers, as Japanese consumers, for the most part, are more savers then spenders.

Capital spending by companies is usually related to business sentiment, and how businesses feel about the future.

While the Japanese government gave subsidies and tax cuts of 40,000 yen, it doesn't go that far when inflation increases every month, and the 40,000 can be used up very fast in one month.

Japan, for many years and maybe decades didn't see much inflation, so its probably been hard for Japanese households who were more suited to deflation or decreased prices.

Again the stronger-than-expected GDP growth, while not be negative, is not usually the situation in Japan, as the Japanese economy has been stagnant for a very long time.

The auto scandal related to auto testing discrepancies might have abated but the auto industry is going to be watched more closely for now on, and the Japanese government doesn't want another industrial scandal in Japan.

Ever since the pandemic prices have continue to increase in Japan, and it seems, at this time, there is no end in sight for the decrease in prices or even the leveling off of prices.

Domestic demand has never reached it full potential in Japan as, again, Japanese consumers more savers and not big spenders like US consumers.

Private consumption or consumer spending is never that strong in Japan, and recently because of continued inflation, its even less strong.

It might account for half of Japan's GDP, but most likely the level of spending in Japan is never that much, or never that much recently.

Strong demand for cars, while good, is never an everyday thing, as durable goods, such as cars, are not bought everyday but maybe just every few years, if even that.

Capital spending is sometimes hard to figure out as what are companies in Japan doing exactly. For example there is a so-called labor shortage in Japan, and are companies trying to increase their hiring, or are they just tying to use automation to overcome the labor shortage?

Ordinary people sometimes might feel disconnected from all of the news about increased exports and a strong trade surplus, as sometimes there seems to be two different economies related to Japan, one being export and the trade surplus and other being the high prices due to the weak Japanese yen, and which is causing import prices to be high.

Wage increases are good and needed, but the challenge is as 70 percent of most Japanese don't work for large name-brand companies, the small and midsize workers might not have gotten the same wage increases, which means consumer spending might not be where it should be.

But that is a market economy where not everything is equal and there are some who benefit and some who are not so well off.

Prime Minister Kishida can ask companies to increase wages, and some have or many have, but the challenge is maybe some companies and their profit margins just can't handle any real wage increases as they are struggling with high energy and raw material costs.

And then add in the so-called labor shortage, which means companies now that to pay even more for workers and there is a competition for the best talent available in Japan.

The 40,000 yen income tax cut and or subsidy, again, doesn't go very far and inflation can eat into the 40,000 very fast in Japan.

There was strong wage growth for large companies in Japan, but maybe not for the small and midsize companies in Japan, as the most likely got lower wage increases.

And then there is a huge segment of part-time workers and contract workers who never get the same benefits and large company workers so they might have gotten even less in wage increases, if anything at all.

Demand for cars in the US continues to be strong, as the news of a  possible recession was muted with new data so the US economy continues to be the strongest economy in the world at this time.

The Japanese economy seems to be stuck or stagnant for many reasons, such as the low birthrate, lack of favorable immigration policies, and the lack of productivity or innovation among the traditional Japanese companies.

Most likely the high-tech companies are doing their part in increasing productivity and innovation, but the problem seems to be the large traditional companies which are dragging down the Japanese economy.

Maybe it was inevitable that Japan would lose its 3rd place to Germany or any other country, as maybe the US would lose its place to India or China in the future.

Have a nice day and be safe!

Japan Current Account: Updated August 26, 2024.

 

Japan logs 12.68 tril. yen current account surplus in 1st half

Article Source:  https://mainichi.jp/english/articles/20240808/p2g/00m/0bu/018000c

Ideas:

Japan's current account might be looking up/improving, but not so much for the domestic economy and inflation is still high in Japan.

The Japanese domestic economy has a long way to go to start growing again, as its been stuck or stagnant for a very long time.

Every time something improves related to the Japanese economy, something else appears to be negative and the Japanese economy can't seem to get all things positive at one time.

A country's current account is like a country's bank account as exports and dividends improve the current account but imports decrease the current account.

Exports, for the most part, are an important economic driver for the Japanese economy. An economic driver is anything that significant helps the economy grow.

Also among exports, Japanese cars are the most important export, and as the US economy is still doing good demand for Japanese cars are still strong, but then so are most foreign cars in the US.

Despite so-called fears the US economy is not headed for a recession and is still the strongest economy in the world at this time.

Japan has always been resource-scarce country but has been able to get though it for all these years, but this time, since the pandemic the weak Japanese yen has been a constant challenge for the Japanese domestic economy.

But at the same time, there are some positives related to the weak yen, as it increase investments from overseas, it boost foreign tourism, as foreign tourist have more purchasing power, and of course it boost Japanese exports who sell the products overseas.

And then there is the interest rate differential between the US key rate and the Japanese key rate, which is a main reason for the weak Japanese yen.

Foreign visitors or tourists have become an important resource for keeping the Japanese economy afloat, as the normal domestic economy seems to be stuck at this time, despite the wage increases in April.

Japanese citizens, at this time, probably are not too keen on traveling overseas, as the weak Japanese yen is actually strong for Japanese citizens, which means they have less purchasing power in the US or in the EU.

Even though Japanese current account has been improving, Japanese debt to GDP ratio is still among the highest among advanced economies.

There seems like there is two economies related to Japan, the domestic economy and then the export economy, or two parts of the same economy. 

The domestic part of the economy seems to be stuck or stagnant yet the export and current account part of the economy seems to be doing much better.

Its kind of like the Japanese stock market, which also is doing very good, but seems to be not really a part of the real economy or the domestic economy, as most Japanese households don't see any benefits from exports or the stock market.

Its seems like sometimes, the Bank of Japan is mostly focused on exports and making sure the Japanese yen remains weak, even though they said something different, as the weak yen boosts exports earnings along with improving the Japanese current account.

Have a nice day and be safe!

Japan Trade Deficit: Ideas Later: Updated July 21, 2024.

 

Japan's trade deficit halves in 1st half of 2024 on strong exports

Article Source:  https://mainichi.jp/english/articles/20240718/p2g/00m/0bu/020000c

Ideas:

As Japan is heavily dependent on exports, its seems that maybe because of the pandemic it had a significant trade imbalance after the pandemic situation.

Also contributing to the trade deficit might have been a weak Japanese yen, which inflates import prices in Japan, as Japan is resource-poor country and has to import much of what it needs from food, raw materials, and energy.

Japan seems to have built its economy on exports as maybe international trade takes priority over the domestic economy, or it seems that way.

As the Japanese domestic economy doesn't seem to grow that much, exports and foreign visitors going to Japan seem to be the two main economic drivers for the Japanese economy.

An economic driver is any economic activity that significantly increases economic growth and the overall domestic economy, outside of these two economic activities, there doesn't seem to any other solid economic activities that might be good for the Japanese economy at this time.

Foreign visitors, which is now at a record high spend a lot in Japan, as the weak Japanese yen, gives them more purchasing power which means for their respective county's current the weak Japanese yen, helps them spend more in Japan, which, again, significantly helps economic growth in Japan.

Japanese auto exports, or the Japanese auto industry, again seems to be leading the Japanese economy, as again, no other industry, other than the foreign tourist industry seems to be improving much.

Economies always go through ups and downs and Japan is no exception, except it doesn't grow that much, if at all.

The Japanese economy is a very stable economy, as it doesn't have many or almost no sudden shocks or surprises.

The Japanese yen is a major puzzle that is not going to be solved anytime soon.

Unfortunately, whatever the reasons, and again, is very complicated, is not going to be solved anytime soon, as there are many factors related to the weak Japanese yen.

Again, the US economy seems, at this time, to the the world's leader in economic growth, which is good for Japanese exporters as there is strong demand for Japanese products in the US.

The same can't be said, at this time, related to China, as maybe demand for Japanese products is not so good, and China has a lot internal economic situations that need to be solved to get its economy back to some kind of normal or even a new normal.

Have a nice day and be safe!

Japan Household Spending: Updated July 1, 2024

 

Japan's FY 2023 household spending down 3.2% on rising prices

Article Source:  https://mainichi.jp/english/articles/20240510/p2g/00m/0bu/006000c

Ideas:

Household spending in Japan has never been as strong as it should be as Japanese households are not the big spenders like in the US. Japanese, for the most part, have been savers, but everyone or every household is different and each have their own spending habits and desires.

At the same time, inflation has definitely affected consumer spending in Japan as many households have cut back on different items.

Unfortunately, the fixed income groups are more affected than the regular income groups as they only have so much to spend and any price increase cuts into what they do have and they might have to cut back on one item to buy another item.

Import prices and the weak yen, are definite causes are reasons for the increase in price, along with global raw material price increases which might too be related to the weak Japanese yen,

And don't forget energy/oil/gas prices, global prices have continued to increase and as Japan is a resource-poor country, Japan needs to import much of what it needs.

If Japan doesn't have already, they need trade agreements with oil producing countries so that they are not at the mercy of oil price swings or even the weak Japan yen and imports.

Wage increases in 2023 were supposed to help Japanese workers but it seems wage increases were not enough to overcome increases in inflation. At the same time, some 70 percent of Japanese wage earners don't work for the large Japanese companies, and as such, they might not have gotten a wage increase in 2023.

Its important to remember that the 30 percent for food might be 40,50 percent for low-income or fixed income groups. Meaning for the total income, they have to use more of what they have for food than the regular income earners.

And again, as prices have increased, the all income earners might decide to cut back on this or that, as needed, to make ends meet or stay within their budgets.

Cram schools, to be fair and honest should not be even a part of regular education, as the regular schools should be able to meet the needs of the students. Unfortunately, even in Japan status is important and parents want their children to go the best schools possible instead of just letting the students go the the schools they want.

Even though there were government subsidies related to utilities, most likely Japanese households cut back as needed if the weather cooperated, which it did this past winter.

But the same situation might not happen this summer as its most likely going to be another hot summer in Japan, and for the most part, its already hot. Last summer the summer heat lasted well into late September even early October.

Japanese households only have so much to spend, and if inflation continues to increase or has continued to increase, and wages haven't increased, and are usually only increased in April of each year, Japanese households are constantly subject to inflation increases and no wage increases.

Entertainment is always subject to being an extra income situation and again, as inflation has continually increased in Japan, entertainment for some or many households might be reduced as way to save and or keep their budgets in line.

Japanese households, like any around the world, respond to incentives and as the Japanese government had an incentive for travel, many Japanese might have taken advantage of the government travel program.

Yes, the extra weekend might have been enough to increase food spending for the month, but in reality it was not extra spending just a continuation of spending for the month.

Again, Japanese consumers, for the most part are not big spenders and consumer spending in the Japanese economy might be around 50 percent of GDP but its never as high as it should be for the 3rd or 4th largest economy in the world.

Wage increases need to continue to help Japanese consumers feel good about their wages and then maybe, just maybe they will begin to spend a little more to increase economic growth in the Japanese economy.

Have a nice day and be safe!

Bank of Japan, Again: Updated September 5, 2024.

 

Bank of Japan debated future rate hikes if weak yen keeps driving inflation

Article Source:  https://mainichi.jp/english/articles/20240509/p2g/00m/0bu/033000c

Ideas:

The idea among central banks is if you increase the key rate, it acts like a deterrent for further borrowing and spending in the economy, which dampens demand, which will cause inflation to decreases as companies lower prices due to less demand.

But the past then years, the Bank of Japan, has not played by the same rules as the US or the EU, they haven't increased the key rate, as they suggested the Japanese economy was/is just too weak to handle any side-affects related to a rate increase.

That might be well and good as not economies are exactly the same, so maybe the Bank of Japan did the right thing as maybe the Japanese economy is/was just too weak for a rate increase.

The weak Japanese yen is a positive and a negative depending on whether you are an Japanese exporter or a Japanese importer or part of the domestic Japanese economy.

For Japanese exporters, the weak Japanese yen gives an exporter more for your Japanese product, such as cars in the US or the EU.

For an importer, unfortunately, the weak Japanese yen increases imports prices, as Japan resource-poor country and has to import much of what it needs.

The weak yen might be negligible on inflation, but tell that to Japanese households who have had to endure continuous inflation since the pandemic or even before the pandemic.

Cost-push inflation, meaning Japanese companies pass-on their energy and raw material costs to the next in the supply chain, including the final customer is not going away, and even more, as companies have increased wages, which means they will increase prices to cover the wage increases.

Foreign tourists, or inbound tourism is a boom for Japan at this time, and with the weak Japanese yen foreign tourists have more purchasing power, to buy more in Japan, which is good for Japanese businesses.

So maybe just maybe the weak yen is not good for the local Japanese economy or business, but it actually might be slightly good as it brings more foreign tourists to Japan, who spend a lot of money in Japanese businesses, hotels, restaurants and so on.

The Japanese economy is always going to be stuck in its current situation as it has to import much of what it needs and is subject to global raw material prices and energy prices.

And yes, the Bank of Japan has not followed the US and they EU in continuously increasing the key rate. The US key rate might be close to 5 now while the Japan key rate is still close to zero which is a major variance affecting the Japanese yen.

However, the US has not increased the key rate for sometime, as is suggesting it will begin to cut the rate in the future which will bring the US rate and Japanese rate closer together, but not that much just yet.

Core-core inflation is always increasing in Japan, or it has the past few years, and it doesn't look like it going to  be much different the rest of 2024 and maybe even in 2025.

Financial markets are always on the look out for signs about what the Bank of Japan is going to do and even what the US Federal Reserve is going to, and even what the EU central bank is going to do. 

They sit on edge for anything that they think might change the market and they are, for the most part, very reactive to anything, and when something does happen they react strongly up or down and never really looking at the big picture of what is going on

The Bank of Japan most likely holds most of the Japanese government bonds, as they buy the bonds as a way to improve the Japanese economy. While that might be a good short-term fix it doesn't do much of the heavy debt the Japanese government has, as it has the highest debt to GDP ratio compared to other advanced nations.

Its going to take some time for the Bank of Japan to normalize its holding or it ultra-low policy as its kind in a quagmire at the present time, with the Japanese economy in a fix between the weaker than Japanese yen, higher that needed inflation, and higher than needed import prices.

Have a nice day!

Editorial: Japan's Lost Years: Updated May 2, 2024

 

Editorial: Gov't, businesses' neglect of people has cost Japan 30 years of stagnation

Article Source:  https://mainichi.jp/english/articles/20240430/p2a/00m/0op/020000c

 (It seems this article might have been deleted on the main website)?

Ideas:

It has been suggested that Japan grew too fast after WW11, especially in the 70's and 80's and maybe Japan became too arrogant about its growth rate, didn't really focus on building a foundation for the future, instead just focused on market share for growth.

An economy is very complicated and there are no easy answers to grow an economy and or restore an economy, which Japan is now tasked with doing. 

China might making the same mistakes as Japan has had and maybe take some time to restores its economy too.

Wages are only given once a year, in April, while inflation is a daily/weekly situation that keeps increasing.

Household spending or consumer spending in Japan is always a challenge and the Japanese, for the most part, have always been more savers than spenders compared to US consumers.

At one time, maybe in the 60's and 70's, and maybe the 80's too. Peter Drucker, the late management expert used to go to Japan every year and give seminars about business and management, and Japan companies revered him for his ideas.

What Drucker usually talked about, related to Japan, was Japan's emphasis on its human capital and how Japanese companies saw employees as key stakeholders, meaning workers were very important to Japanese companies, and at the time not just a commodity to be used and laid-off, when needed.

But those days seem a long time ago, and Japanese companies seemed to have become too westernized with their emphasis now on short-term results and thinking only of shareholders and not employees still as stakeholders.

Long-term plans or goals used to be the trademark of Japanese companies and they weren't too focused on short-term goals to keep stockholders happy, and again, those days seem a long time ago.

There might be a multitude of variables as to why Japan has not kept up in the world and maybe those mentioned are some keys to what has happened to Japan.

Perhaps, again, Japanese companies became too arrogant in the 1980's as there were many articles written that Japan would overtake the US and the number one economy in the world.

Well, it never happened and Japan has gone backwards for its heyday of the  1980's, and no company shows it more than Sony and or Japan's smartphone companies which have failed to keep up with Apple or Samsung.

Again, how many Japanese smartphones are among the market share leaders around the world? None, as Apple, Samsung, and maybe some Chinese companies are the market leaders these days, and Japanese smartphone companies only sell in Japan.

What was a key trademark for Japanese companies was developing in-company talent, but again those days were wasted as talent development became a secondary matter to keeping shareholders happy in a company.

Again, an economy is very complex and Japan, good or not so good, tried many things, that they thought was in the best interest of Japan. Most of course didn't work, but for the most part, didn't bring real harm to the economy, but just kept the economy in a semi-stagnation situation for a very long time.

Abenomics, at the time, seemed like the answer to get the economy out of stagnation situation, but maybe the Japanese economy was in such a hole, that not even Abenomics was going to get it going.

Its only natural that governments try to use fiscal stimulus packages to get the economy moving again, but they should be used sparingly and not continuously, as Japan has tried to do, and because they were used so much, they might have lost their affect on the Japanese economy.

Consumer sentiment seems to be in a deep dive or deep hole for a very long time as Japanese households and consumers lost hope in the Japanese economy ever being what it once was when it was more like free-wheeling free-spending economy of the 1980's.

That is the problem and challenges of monetary policy. Policy seems to help some in an economy and not help others in an economy and maybe even harm some.

For example, a weak yen helps exporters but hurts importers and the domestic economy, but again, its almost impossible to help each and ever sector in an economy with the same monetary policy.

Monetary policy decision makers have to make a choice and unfortunately, its the Japanese middle class that didn't really benefit from Abenomics, preferring to favor Japanese export companies such as Toyota and those affluent in Japanese society and business.

And yes, government spending became the norm at the time to try and lift the Japanese economy out if its stagnation situation.

Its seems the risk takers of the 60's, 70's, an 80's lost their drive after the Japan economy crashed around 1989/1990, and many of these risk takers either retired and or new management and CEO's were just content with the status quo.

It was at that time, that many Japanese companies started to re-structure and move more toward western style financial management and putting more emphasis on stockholder/shareholders and not so much on workers as important stakeholders in the company.

The entire Japanese economy and society had drifted into a just get by stagnation and the drive and risk-taking of the 60's, 70's, and 80's had been lost by all.

By now, maybe its going to be impossible to completely re-structure the entire Japanese economy, as maybe many young workers just don't have the needed drive and maybe many companies don't have the initiative to do the required restructuring.

And again, the focus seems to be only on shareholder value and not employee stakeholder empowerment, which can go a long way toward lifting up the middle class and also increasing consumer spending in the Japanese economy.

And maybe no-one really cares that Japan has fallen to 3rd, 4th, and 5th as an economy, an even more it terms of per-capita income.

Conclusion: This article might have been deleted from the main webpage as maybe it caused too much friction with the idea that both the Japanese government and Japanese companies were the main players that didn't do much to improve the economy, over 30 years.

But to be fair, Japanese government and the Bank of Japan policy makers tried to do what they thought was best for the Japanese economy at the time. 

Again, an economy is very complex and has many moving parts that can't always be fixed or managed at the same time, Policy makers have to makes decision, and they know there are going to be side-effect with whatever they try to do.

Have a nice day and be safe!

More Bank Of Japan News: Update Dec. 3, 2024

 

Bank of Japan chief points to hiking interest rates if inflation keeps rising

Article Source:  https://mainichi.jp/english/articles/20240420/p2g/00m/0bu/004000c

Ideas:

Japan didn't interest rates for many yeas, as they felt the Japanese economy, during and after the pandemic was just too weak. The Bank of Japan didn't follow the usual strategy of other central banks, like the US bank of the EU bank, and increase the rate as inflation increased.

It remains to be seen just how much the BOJ will increase rates in the future as they have a long way to go to reach the level of the US and the EU, as way to stabilized the weak Japanese yen.

There both positives and negatives to increasing the key rate and the BOJ has to decide which are most important to the Japanese economy in the future.

The Bank of Japan knows that all inflation is the same, as some inflation is related to companies passing-on their costs to the next in the supply, which might be considered negative inflation.

And then there is positive inflation which is inflation due to increasing prices due to increased demand and increased consumer spending in the Japanese economy.

Most likely if inflation is below the 2 percent BOJ target its positive inflation that hasn't been achieved yet in the Japanese economy.

The short-term interest rate range of zero to 0.1 is way below the US rate, which might be a reason for the weak Japanese yen.

The main reason Japan has kept it short-term rate very low is too get businesses and Japanese households to borrow easy money and use it in the Japanese economy, but so far, at least with households, they haven't increased their spending.

However, the Bank of Japan, like most central banks are are very conservative group and they are not going to just increase the key rate if the data is not there to support a rate increase.

The Bank of Japan might be the biggest owner of Japanese government bonds and for the most part, there are not that many external owners of Japanese bonds.

The only positive, related to Japanese government debt to GDP ratio is that most of the debt is owned by the Bank of Japan and there are very few external owners, which was not the case with Greece in 2010.

The Bank of Japan usually moves very slow and reacts very slow as they don't want to upset the financial markets with any sudden moves.

Since there hasn't been any real concrete signs that the Bank of Japan is going to increase the key rate, most likely nothing much is going to happen in the Thursday meeting.

The BOJ might raise it inflation forecast, but that is not a sign of a change in the key rate, as again, they will move very slow and watch everything very carefully in the future.

In years past, as inflation increase the BOJ didn't increase the key rate, as at that time, again, they felt the Japanese economy was too weak and they also felt there were potentially too many side affects for the Japanese economy and increasing the key rate.

The weak Japanese yen has been a negative for the Japanese domestic economy for some time, but also even though the Japan is a resource-poor country, with the weak yen increasing import prices, there are some positives related to a weak yen too.

Japan has to import much of what is needs and with the weak yen, it increases import prices and importers of course pass-on their costs to the next in the supply chain.

The positives of the weak yen are that Japanese exporters see higher revenue for the products along with Japanese investors see more returns and of course the record number of foreign tourists have more purchasing power with the weak yen.

What Ueda, the Bank of Japan governor is saying here is when the BOJ increases the rate, they don't have enough data to see how the increased rate would affect the Japanese economy, as interest rates go up, borrowing costs go up and the BOJ just don't have enough data to see how the increased interest rate affects borrowing.

So the BOJ is basically in the dark after many years of not increasing the rate for a very long time, and no data to look at related to increasing the key rate.

Have a nice day!

Big Company Sentiment: Updated April 13, 2024.

 

Japan big makers' sentiment worsens for 1st time in 4 quarters: BOJ

Article Source: https://mainichi.jp/english/articles/20240401/p2g/00m/0bu/002000c

Ideas:

There seems to be two indexes being mentioned here. One related to business confidence of manufacturers moving from 13 to 11 and then another index moving from 34 to 32. Perhaps one index is related to manufacturing and another related to non-manufacturing.

The Toyota group situation, and their quality control challenges with Daihatsu, forced a shutdown of some of the Toyota plants. But a decrease from 13 to 11 is not that big a deal, as it was not good in the first place.

The non-manufacturing index has seen an uptick of confidence due to services seeing a surge in activity and or course a huge surge in foreign tourists going to Japan.

As consumer demand and consumer spending has improved significantly, service companies are able to pass-on their costs to the consumer without fear of losing customers or too many customers.

All indexes need to be taken with a grain of salt, meaning not all companies see the exact same things or feel the exact same things in the economy.

The Bank of Japan might have had its first rate hike since 2007, but does the average public feel anything different or do companies feel anything different yet?

It might take some time for the key rate increase to have any real affect on the Japanese economy, and then the affects might be so small that no one really notices anything.

Deflation is not going to end just yet, just because the BOJ increased the key rate. Its going to take some time for all in the Japanese economy to see any real affect related to deflation or even inflation.

The idea, recently, that the Japanese economy was in a state of deflation might have been a slight misunderstanding as companies have been passing-on their energy and materials costs for the last few years, which is a sign of inflation and not deflation.

Yes, for a period, there were times of lower prices and periods of companies not passing-on their costs to the next in the supply chain, but most likely those days were gong a few years ago as companies felt they had no choice but to pass-on their costs to the next in the supply chain, including the final retail customer.

The Bank of Japan is not going to do anything do drastic to upset the financial markets, and most likely they are not going to increase the key rate too fast or too much, preferring to take a step by step approach to see how their rate increases affect the economy. 

There are side affects to increasing the rate, such as borrowing costs, and existing loans, which can be affected with increasing the rate.

But as the BOJ key rate continues to increase overtime, it will come more in-line with the US rate, which means the Japanese yen, could become stronger, which is good for the importers and the domestic economy, but not so good for Japanese exporters and foreign tourists going to Japan, as a weaker yen give tourists more purchasing power.

But the BOJ is well aware of how the weak Japanese yen affects the Japanese economy, exporters and foreign tourists and they most likely will take them into account when they decide to increase the key rate again.

Perhaps Japan has finally reached a point where it can see light at the end of a long inflation/deflation/stagnation tunnel and things will continue to get much better.

It might be the beginning of a surge in economic growth that Japan has not seen in a very long time. For example most the time, the Japanese economy only grows 1 percent, at the most, and with the wage increases and an increase in business confidence and business investments, there could be some significant growth, such as 2 or 3 percent which would be very significant for Japan.

Of course, it all depends on what Japanese consumers feel with the proposed wage increases and will all companies participate in the wage increases?

The Japanese holiday period called Golden Week the first week in May, will be a key indicator of what is really going to happen. If there are a lot of Japanese citizens traveling during Golden Week and many going to places and spending, that is a good indication that the economy is maybe back on track for the first time in a long time.

But if Japanese citizens decide to stay home, not travel, and not go out to restaurants and so on during the Golden Week period, that too, is a sign that the Japanese economy, is still not there yet.

Its never appropriate to say that key figures or data is changed, but its better to say data is always being revised as new data comes into focus, which is probably what happened, for the final quarter of 2023.

Sometimes an economy can become unbalanced and relies too much or a few key economic drivers such as in Japan auto production and the Toyota Motor group.

For example in South Korea, the reliance on a few large companies and a few economic drivers such as exports and semiconductors.

For Japan, yes Japanese cars are a major export driver, and maybe Japan is too reliant on auto exports for economic growth and needs to balance out its economic growth base, so that if Toyota and or other car companies have challenges the Japanese economy doesn't contract due to one or two economic drivers that had some bad quarters of growth.

For example, the Japanese semiconductor industry, 30 years ago, was a market leader, but it lost out to Taiwan and South Korea, But recently the Japanese government has been investing in the semiconductor industry and with cooperation with TSMC, the main Taiwanese company, they are building new plants in Japan to increase Japan market share.

But its going to take time for the Japanese semiconductor industry to see any real market share growth.

As indicated, inflation is not going away in Japan, and the idea of three to five more years it probably correct, as companies will continue to pass-on their costs to the next in the supply chain, including passing-on wage increases.

The BOJ's goal of 2 percent inflation has to do with consumer demand and consumer spending and not so much companies passing-on their costs to the next in the supply chain.

Yes, the BOJ is going to be very cautious and not increase the rate too much, as they want to see what affects small changes will have on the Japanese economy, after years or the low rate.

It might takes months for businesses and consumers see an affect related to the key rate increase. In the past the BOJ didn't seem to want to do much for concern of possible side affects related to rate increases such higher borrowing costs and higher rates for existing loans, which could place a lot of stress on business and consumers.

The Japanese yen, may surge again, which it did and has in April of 2024, but the BOJ has delayed any action, again, because of possible side-affects to any actions they might take.

There are positives and negatives to the labor shortage in Japan. For workers it might be mean the possibility of higher wages but for companies it might mean they will be forced to automate and actually use less labor. And again, there are positives negatives to both sides of the issue, automate or pay more for workers?

Yes, an lack of labor can be a real negative for the Japanese economy, as there will be less consumer demand and less consumer spending in the Japanese economy, and those workers who don't get jobs or good jobs in the economy, could be a burden on society and not be full functioning working members of the Japanese economy.

There has to be a balance, in any economy between good jobs and labor and automation and too much of either leads to an unbalanced economy.

In the past maybe Germany and Japan were excellent example of balance economies between small and large companies having similar working conditions, but that has changed a lot related to Japan these days, and maybe large Japanese companies have too much power or market share and small companies are unable to keep up because of less resources available.

As a result, now maybe Japan has become more like South Korea where large companies have all the power and have better benefits and smaller companies have less power and less benefits and or course better salaries for large companies not so good salaries for small companies.

Unfortunately, its only natural for younger workers to want to work for the large companies that provide better wages and benefits but not always better working conditions.

Have a nice day and be safe!