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Japan: Recovery in recess

  • The BoJ appears overoptimistic about Japan’s economic outlook and we expect the 2% inflation target to remain well out of reach over the coming couple of years. 
  • But the economic recovery is probably just in temporary recess and we do not expect a return to recession. And we think the BoJ will continue to resist the urge to ease policy further.

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BoJ: The end of the easy bit?

  • Contrary to some market participants, we do not expect the BoJ to amend policy this week.
  • An upbeat economic forecast will be used to justify leaving policy unchanged, while the BoJ will fear that the benefits of additional easing might not stack up against the risks.

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Abe: Third time lucky?

Last weekend’s election saw Shinzo Abe triumph for the second time in two years to take office as PM for the third time. This stands Abe in good stead to be Japan’s longest serving leader in more than four decades. More importantly, it gives Abenomics the time it needs to re-establish firmer economic growth and reflate Japan on a lasting basis. 

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Kuroda waves his wand again

  • The BoJ today defied expectations and unleashed a further expansion of its already massive QQE programme.
  • Not least by facilitating reforms to the GPIF pension fund, the new money  to be created by the BoJ will keep JGBs well supported, give a boost to domestic equities, and further weaken the yen.

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The BoJ's Tankan Survey: Steady as she goes

Today’s BoJ Tankan Survey was broadly upbeat, suggesting that business conditions are broadly favourable across a range of sectors, firms are ready to invest more, and the labour market is tight. So, despite some recent weak economic data, next week’s Policy Board meeting is unlikely to see the BoJ revise significantly its assessment of the economic outlook or signal the likelihood of extra stimulus.

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