Japan Country Profile - Economy, Currency, Central Bank, Canadian Dollar, CAD

Introduction

Japan is the 2^nd largest economy in the world with GDP valued at $4.367 trillion in 2006, and a population of 127 million. The Japanese economy has highly developed banking, insurance, real estate, retail, transportation and telecommunications industries. Its technology advanced factories produce motor vehicles, electronics equipment, machine tools, steel and nonferrous metals, ships, chemicals. Japan is the 4^th largest exporter in the world behind Germany, the US, and China. However, Japan needs to import most of its energy and food as it does not have much agricultural land or oil reserves.

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Japan's Fundamental Indicators and Chart

Monthly Data for February, 2008

Date	EST	Indicator	Actual	Forecast	Previous
2/3	6:50pm	Monetary Base y/y	-0.1%	0.3%	0.4%
2/6	12:00am	Leading Index	40.0%	40.0%	18.2%
		Preliminary measure for December Release from the Cabinet Office
2/7	1:00am	Machinery Tool Orders y/y	-1.0%	3.7%	3.7%
		Preliminary measure for December
2/7	6:50pm	Core Machinery Orders m/m	-3.2%	-1.0%	-2.8%
2/7	6:50pm	M2+CD Money Supply y/y	2.1%	2.1%	2.1%
2/8	12:00am	Eco Watchers Survey	31.8	35.5	36.6
		For January Official Releases Eco Watchers Outlook: 35.8, pr. 37.0 The Eco Watcher Survey, which measures the perceptions of workers with jobs senstive to economic trends, saw its 10th decline in a row on January. The index fell more than expected to 31.8. The future outlook index, fell to the weakest level since December 2001.
2/12	6:50pm	Corporate Goods Price Index y/y	3.0%	2.7%	2.6%
		For January CGPI m/m: forecast, 0.0%, pr. 0.4%
2/12	6:50pm	Current Account	1.86T	1.90T	2.16T
		Seasonally Adjusted for December. Total Current Account: forecast 1.71T, pr. 1.78T
2/13	12:00am	Consumer Confidence	37.5	37.5	38.0
		For January Provided by: Cabinet Office
2/13	6:50pm	Gross Domestic Product q/q	0.9%	0.4%	0.3% 0.4%
		Preliminary version for 4rd Quarter Provided by: Cabinet Office Summary: PDF Annulaized GDP: 3.7%, forecast 1.4%, pr. 1.3% (July-Sep) Japan's economy beat expectations in the 4th quarter, increasing 0.9% for the 4th quarter, and 3.7% at an annualized rate. A big catalyst for the surprising showing was a 2.9% increase in business investment, including increased spending on automobiles and software, as well as orders to handle capacity from emerging economies. Domestic private consumption increased 0.2%, hardly a strong showing, and private residential investment - mainly housing - fell 9.1%, continuing a downtrend. Exports remaind steady at 2.9% growth, matchin the 3rd quarter. Imports grew 0.5% compared to a 0.1% decline in the 3rd quarter. The strong showing in the 4th quarter may taper off, especially business investment, if the slowdown in the US is protracted and effects US imports. The US is the main market for Japanese exports.
2/13	11:30pm	Industrial Production m/m	1.4%	1.4%	1.4%
		Final Release for December Provided by Ministry of Economy, Trade and Industry - Titled "Report on Indices of Industrial Production"
2/14	10:50pm	BOJ Interest Rate Statement	0.50%	0.50%	0.50%
		Release from Bank of Japan The overnight call rate remained at 0.5% after the BoJ voted to hold rates. This was a 9-0 vote and was expected by the market. There is a cautious sentiment and the central bank's policy committee will remain watchful of exports and capital investment as well as the ongoing slowdown in US, a major trading partner to Japan.
2/15	1:00am	BOJ Monetary Policy Report
2/15	1:00am	BOJ Governor Fukui Speaks
2/17	6:50pm	Tertiary Industry Activity Index	-0.6%	-0.2%	0.1%
		For December Provided by: Ministry of Economy, Trade and Industry Official Source: Indicator Page
2/18	12:00am	Leading Economic Index	45.5%	45.5%	40.0%
		Final version for December Release from the Cabinet Office
2/19	6:50pm	BOJ Meeting Minutes
		Bank of Japan Minutes of Jan 21-22 Meeting Provided by: Bank of Japan Official Source: PDF From the Release: "On the guideline for money market operations for the intermeeting period ahead, members agreed that, given the economic and financial situation, it would be appropriate to maintain the current guideline that the Bank would encourage the uncollateralized overnight call rate to remain at around 0.5 percent. They shared the following view: (1) global financial markets continued to be unstable, and there was uncertainty of global economic developments due, for example, to the surge in international commodity prices, particularly crude oil prices, and to downside risks to the U.S. economy; (2) the pace of growth of Japan's economy was slowing temporarily mainly due to the drop in housing investment; (3) however, the mechanism of Japan's economic growth basically remained in place, and the economy was likely to continue expanding moderately under price stability; and (4) in this situation, it was appropriate to carefully examine economic and financial developments at home and abroad to grasp the situation more accurately. Members concurred that their basic thinking on the monetary policy stance for the future remained unchanged. Some members noted the possibility in the short run of slower economic growth and a higher rate of increase in the CPI, and said that it was important not to be swayed too much by short-term developments but to make forward-looking projections of economic and price trends and clearly explain them based on the mechanism underlying economic and price developments. In addition to the above discussion, members discussed, as in the previous meeting,how the rise in domestic prices triggered by the surge in international commodity prices, particularly crude oil prices, should be understood and how it should be reflected in the conduct of monetary policy. Some members expressed the view that not only supply shocks but also the growth of emerging economies, a demand-side factor, was placing stronger inflation pressure on the global economy, and the degree to which each was contributing should be assessed."
2/20	6:50pm	All Industrial Activity Index	-0.2%	0.1%	-0.5%
		For December
2/20	6:50pm	Trade Balance	0.86T	0.93T	0.64T
		For January - Seasonally Adjusted Total Merchandise Trade Balance: -¥79.3B, forecast ¥20.9B, pr. ¥877.9B
2/25	6:50pm	Corporate Service Price Index y/y	0.8%	1.4%	1.4%
		For January Provided by The Bank of Japan m/m -1.1% prev. 0.1% Inflation felt by firms lessened in January, bringing the yearly inflation down to 0.8% from 1.5% in December. The monthly decline was attributed to a flux in prices in Ocean Freight Transportation and Ship Chartering Services, both of which surged in December and eased off in January.
2/27	6:50pm	Industrial Production m/m	-2.0%	-0.8%	1.4%
		Preliminary Release for January Indusrial Production y/y: 2.5%, forecast: 3.7%, pr. 0.8% Provided by Ministry of Economy, Trade and Industry Japanese industrial ouput scaled back in January. Production, Shipments and Inventory Ratio decreased. The Survey of Production Forecast in Manufacturing projects another decrease in February, but a rebound in March. Industrial production was dragged down by electrioni parts and devices, transport equipments, and general machinery. Shipments declined for the first time in two months and may be an result of the US slowdown.
2/27	6:50pm	Retail Sales y/y	1.5%	0.0%	0.2%
		For January Provided by the Ministry of Economy, Trade and Industry - Titled "Preliminary report on the Current Survey of Commerce" Large Retailer's Sales y/y: -1.9%, forecast -1.4%, pr. -1.5% Retail Sales increased 1.5% compared to a year earlier, the sixth month of increases. Sales were primarily driven by a 5.9% increase at fuel retailers. Large retailers continued showing weakness, declining for a second straight month, and for the 4th time in 5 months.
2/27	6:50pm	Large Retailers	-1.9%	-1.4%	-1.5%
2/28	6:15pm	Manufacturing PMI	50.8	52.0	52.3
		For February
2/28	6:30pm	Consumer Price Index y/y	0.7%	0.7%	0.7%
		National CPI for January Provided by: Statistics Bureau CPI ex. Fresh Food y/y: 0.8%, forecast 0.9%, pr. 0.8% CPI ex. Food & Energy y/y: -0.1%, forecast -0.1%, pr. -0.1% Inflation for all of Japan in January matched December's value of a 0.7% change compared to last year. Energy prices were the primary contributor as taking food out of the CPI resulted in a 0.8% increase to prices, while excluding both food and energy resulted in a 0.1% decline. It is a similar story in the Tokyo only CPI measure which looks at prices one month ahead of the National CPI.
2/28	6:30pm	Tokyo Consumer Price Index y/y	0.4%	0.5%	0.2%
		Tokyo CPI for February Provided by: Statistics Bureau Tokyo CPI ex Fresh Food y/y: 0.4%, forecast 0.5%, pr. 0.4% Tokyo CPI ex Food & Energy y/y: -0.1%, forecast 0.0%, pr. 0.0% Tokyo CPI m/m: -0.3% Consumer prices for February increased 0.4% compared to last year, an increase over last month's figure. Most of the increase comes as a result of energy costs. CPI excluding Food was up 0.4%, while CPI excluding Food and Energy saw a 0.1% decrease, a difference of 0.5%. As long as "core" CPI stays flat or is negative the Bank of Japan will not move to increase rates from its low benchmark rate of 0.5%. Looking deeper at the data, furniture (-2.9%) and clothing (-1.2) saw declines while transportation (1.6%) and education (1.1) increased compared to last year.
2/28	6:30pm	Household Spending y/y	3.6%	0.4%	2.2%
		For January Provided by: Statistics Bureau Household spending surprised forecasts and showed a strong rise for the January period. Expectations were for a fall in expenditure. Increased spending will help buttress the economy as foreign demand, especially from the US gets weaker as a result of its slowdown. A combination of news from Japan helped to strenghten the Yen. "The average amount of monthly consumption expenditures per household for January 2008 was 309,826 yen, up 4.5% in nominal terms and up 3.6% in real terms from the previous year. The average amount of monthly income per household stood at 438,998 yen, down 0.5% in nominal terms and down 1.4% in real terms from the previous year. The amount of consumption expenditures was 341,138 yen, up 3.9% in nominal terms and up 3.0% in real terms from the previous year."
2/28	6:30pm	Unemployment Rate	3.8%	3.9%	3.8%
		For January (s.a.) Provided by: Statistics Bureau The unemployment rate remained steady at 3.8%, as forecasts had called for it to notch up to 3.9%. The news, combined with several other end of month releases helped strengthen the Yen in the hour following the release. "The number of employed persons in January 2008 was 63.21 million, an increase of 430 thousand or 0.7% from the previous year. The number of unemployed persons in January 2008 was 2.56 million, a decrease of 80 thousand or 3.0% from the previous year. The unemployment rate, seasonally adjusted, was 3.8%."
2/29	12:00am	Housing Starts y/y	-5.7%	-12.4%	-19.2%
		For January Provided by: the Ministry of Land, Infrastructure and Transport, Government of Japan Annualized Housing Starts: 1.187M, forecast 1.118M, pr. 1.050M Construction Orders: -2.5%, pr. 4.7% Housing starts fell at the slowest pace in seven months in January, as the housing market has absorbed regulation changes that dampened housing starts. The government acted in November to ease the regulations, starting the recovery in housing starts. The indicator has been improving the past four months after posting a measure of -44.0% for the September period. Government officials are optimistic that housing is going to recover further in February.

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Central Bank Watch - Latest Bank of Japan Decision

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December
19th, 2008

Actual

Forecast

Revised Form

0.10%

0.30%

N/A

Provided by: Bank of Japan
Official Release: Statement (PDF)

The Bank of Japan cut its key interest rate to 0.1% from 0.3% Friday. It also laid out a plan to boost liquidity in the financial and corporate debt markets by buying corporate debt and expanding its purchases of government debt. It does so after laying out the dangers affecting the Japanese economy which includes a warning about a deepening recession. "Economic conditions have been deteriorating and are likely to increase in severity for the immediate future," the bank said in its statement. The cut is aimed to stimulate the economy and to help ease the appreciation of the yen, which has recently jumped to a 13-year high against the Dollar. Such a strong exchange rate makes Japanese goods more expensive abroad cutting into exports. Today's actions signal a move back towards quantitative easing, an approach now being adopted by the Federal Reserve. Instead of affecting the price of money with interest rates, the bank will now focus on increasing the quantity of money in the banking system.

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Central Bank Watch - Bank Officials' Comments

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November 22 (BOJ Seiji Nakamura) -- Bank of Japan board member Nakamura said that "downside risks" to US economic growth are rising as the housing recesssion worsens. ``Housing investment continues to decline and consumer sentiment-related indicators are worsening because of the subprime-mortgage problem.'' The US is Japan's biggest export market, and puts back chances of an interest rate hike by the Bank.

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Closely Linked to Global Stock Markets

The Japanese currency has a very low interest rate, 0.5%, and for a long time had the ZIRP (Zero Interest Rate Policy). Such a low interest rate made the Yen a funding currency for carry trade. In carry trade an investor borrows Yen to purchase assets with higher interest rates abroad. In order to purchase these assets abroad, the investor must sell the Yen and buy the local currency, thereby reducing demand for the Yen. During times of turmoil in global stock markets, investors hurry to pay back their loans in Yen, therefore strengthening the Yen.

This figure is a weekly chart, of the GBP/JPY pair. Prices moving upward favor the strength of the Pound (the top currency in the GBP/JPY quote). When prices move down they favor the Yen (the bottom currency in the pair).

Japan's Economic Slump

Interest rates in the country are so low because the Japanese economy has battled back from an economic slump starting in 1990, after a stock market tumble. The country the had to battle deflation, which gave rise to lower wages and lower investment. In 2003, the Bank of Japan aggressively boosted the money supply to keep the yen weak. Increased cost-effectiveness in the export sector has led to business profits. Economic data, such as inflation, does not give the central bank much room to raise rates, and the country is vulnerable to a cool down in US spending and growth.