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Japan – services PPI broadening
The rise in February services PPI inflation offers more evidence that Japanese inflation is broadening away from import prices and commodities.
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Japan – inflation broadening
Headline CPI inflation fell back in February. That was because of government subsidies, but there's now also downwards pressure from falls in JPY commodity prices. However, there's also evidence that inflation continues to broaden away from just import prices and commodities.
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Japan – exports sideways
Imports have fallen, allowing the trade deficit to narrow. Exports are going sideways. Our regional export leading indicator has started to lift, which should benefit Japan. But for export performance to improve materially, Japan's auto sector needs to perform more strongly.
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Japan – BSI solid
The BSI reinforces recent themes: that growth should be a bit stronger in the next few months, and that the labour market should finally get back to pre-covid levels of tightness.
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Japan – 6/10, maybe 7
The Economy Watchers Survey was better again in February. So maybe the recovery is a bit stronger than our last assessment of 6/10. But Q4 GDP growth was weak, so the recovery is still young, and so it seems unlikely the new BOJ leadership will want to move policy too much.
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Japan - wage growth slows
Wage growth in Japan slowed in January, as the benefit of year-end bonuses disappeared. Underlying wage growth is running a bit over 1% YoY, stronger than history, but not enough to produce CPI inflation of 2%. In this sense, the BOJ doesn't have much room to shift policy.
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Japan – taking stock
Inflation is finally falling, and the labour market is tightening. But the easing of inflation is because of government subsidies, and employment is still below pre-pandemic levels. So, the recovery is gradual and vulnerable to shocks, with the obvious one being another sharp move higher in $JPY.
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Japan - inflation up again
CPI inflation rose again in January. That's probably the peak, with utility subsidies kicking in from February, and import prices easing. Still, it is no longer reasonable to argue that inflation isn't broad-based, even if it hasn't yet become fully domestically generated.
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Japan – taking stock
It now falls to Ueda Kazuo to try to diffuse pressure on YCC. But he also needs to find a way to nurture economic recovery from covid. This week's GDP data suggests again that this process still has a long way to go, and would risk being short-circuited by premature BOJ tightening.
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Japan – headline halving
Import inflation has now fallen from almost 50% YoY to under 20%, suggesting headline CPI inflation drops from 4% to under 2% in the coming months.
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Japan – picking up
The Economy Watchers survey has been volatile since 2019, so caution is warranted. But the survey was firm in January, led by non-manufacturing. That's important when post-pandemic normalisation of Asian travel has the potential to boost hospitality, driving the unemployment rate below 2019 lows.
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Japan – still gradual
Wages and consumption are trending up, but progress in incremental. Earnings grew more strongly in December 2022 than in any month since 1997. That is welcome, but is mainly the result of bonuses. Separate consumption data weakened in December, but that is probably payback after a strong Q3.
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Japan – slow grind
The two big hopes for Japan's economy in 1H23 are a decline in inflation that lifts domestic spending, and a normalisation of Asian travel that boosts tourism. December unemployment and January consumer confidence suggest both dynamics might be in play, but not yet powerfully.
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Japan – inflation up again
Tokyo CPI rose again in January, and on a headline basis is now above 4%. Leading indicators continue to suggest the peak should be close, with this week's services PPI for December falling.
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The East Asia Economist
With US rates peaking and Asia finally opening up after covid, Japan's economy looks better placed for recovery. If the BOJ tightens now, it risks a policy mistake. Otherwise, the indicators to be watching are the shunto, and recovery of the hospitality industry as Asian travel finally normalises.
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Japan – not much change
Inflation trends aren't changing much. Current inflation through December was high, but leading indicators point to a clear peak. Regardless, policy uncertainty will remain high at lest until the PM picks a new governor for the central bank, an annoucement that is likely in the next few weeks.
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Japan – inflation back to 2%
Import price inflation eased in December, suggesting CPI inflation falls below 2% YoY in 1H23. On this basis, the BOJ shouldn't be tightening. But having opened the door to change in December, the bank faces an enormous task if it wants to convince the market that rates aren't moving further.
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Japan – sluggish recovery
The EW survey of corporates and households continues to suggest modest recovery. It can be hoped that household sentiment improves from here as inflation comes down. That will be helped by the stronger JPY, though data released yesterday confirm very large JGB purchasing by the BOJ in December.
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Japan – steady consumption growth
There's volatility from month-to-month, but the BOJ's measures show that broadly, the acceleration in consumption growth seen since late 2021 is holding. That's even though the BOJ's consumer confidence survey shows a high level of pessimism, with particular dissatisfaction about prices.
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Japan – 3.5% core services CPI
Tokyo CPI accelerated again in December, with further evidence of a broadening in price pressures away from just imports and goods. Underlying services inflation looks to be running at around 3.5% YoY, and with the economy continuing to open up after covid, a further increase is likely from here.
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Japan – (still) warming up
Japan's labour market is continuing to warm up, but to create sustainable wage and price it needs to run hot. Such a transition is possible, but it likely needs a stepping up of employment in the hospitality industry.
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Japan – waiting for hospitality
The Tankan points to GDP growth remaining tepid. It does, however, confirm other data showing services price inflation is beginning to emerge. That seems likely to at least persist as Asia opens up after covid, challenging BOJ claims that inflation in Japan is all about energy prices.
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Japan – still sluggish
Japan's cycle remains sluggish, partly because of import price inflation, though that receded in November. In theory, post-covid opening up of the economy should add momentum to the modest wage and service price inflation being seen. But that feels optimistic given softening business sentiment.
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Japan – incrementally stronger wages
Modest wage growth is gradually accelerating. Labour market dynamics are consistent with that continuing. There is upside risk, but that remains the same as it has been the last few months: normalisation of the economy after covid.
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Japan – some help from autos
Japan's exports are being helped by some normalisation of auto sales. But our regional leading indicator continues to point firmly down.