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 May, 2008

Date	EST	Indicator	Actual	Forecast	Previous
5/1	7:50pm	Monetary Base y/y	-2.8%	-2.3%	0.0%
5/4	6:00pm	Holiday: Children Day
5/9	1:00am	Leading Index	20.0%	20.0%	54.5% 50.0%
		Preliminary Measure for March Provided by: Cabinet Office Coincident Index: forecast 33.3%, pr. 70.0%
5/11	7:50pm	M2+CD Money Supply y/y	1.9%	2.2%	2.2%
5/12	1:00am	Eco Watchers Survey	36.1		36.9
		For April Provided by: Eco Watcher Survey Eco Watchers Outlook: 35.5, pr. 38.2 (Mar), 39.5 (Feb), 35.8 (Jan) The Eco Watchers survey showed current conditions declining in April, after 3 months of growth. The indicators has climbed out of its 7 year low of 32.8 in January, and had been improving the rest of the 1st quarter. Japanese merchants are losing confidence because inflation is hurting consumer confidence and spending. This was evident from the Household Spending data from April 29th that showed the annual rate of spending down 1.6%, which was the biggest drop in 15 years. Other factors include a worsening labor market and weakening corporate sector confidence as a result of high oil and raw material prices which are cutting into profits. The Yen was pressured overnight, as stocks in Europe and the UK recovered, helping to bring carry trade and risk appetite back from a panicky end to last week's trading.
5/12	2:00am	Machinery Tool Orders y/y	0.3%		3.3% 2.9%
		Preliminary measure for April
5/13	7:50pm	Corporate Goods Price Index y/y	3.7%	3.6%	3.9%
		For April Provided by: Bank of Japan Importance: Medium CGPI m/m: 0.6%, pr. 0.5% (Mar), 0.4% (Feb) The annual rate of growth of prices that corporations pay for goods was slower in April than in March. The 3.7% was higher than expectations. The main catalysts for higher prices were petroleum and coal products (19.6%), steel (15.6%) and processed food (3.9%).
5/13	7:50pm	Current Account	2.882T	2.810T	2.467T
		For March, Unadjusted Current Account Provided by: Ministry of Finance Official Release: PDF Seasonally Adjusted Current Account: 2.096T, forecast 1.95T, pr. 1.46 Trade Balance - BOP Basis: 1.250T forecast 1.233T, pr. 1.035T The unadjusted Japanese current account surplus was 12.3% lower in March measuring ¥2.882 trillion, compared to the same time last year. Exports grew 2.8% y/y to ¥7.4 trillion, while imports were up 13.2% y/y to a record ¥6.1 trillion. Shipments to emerging economies and China may not be able to offset the losses from weaker demand out of the US. With inflation hurting companies bottom line's and now orders for exports slowing it will present Japan with a weakness in a very important part of the Japanese economy.
5/14	7:50pm	Core Machinery Orders	-8.3%	-5.2%	-12.7%
		For March "Core Private Sector Machinery Orders" Provided by: Cabinet Office Core machinery orders fell a sharper than expected 8.3%. The trend is now downgraded from a flat reading to a weakening. There are two main factors to the poor reading. First, the global slowdown notably in the US, is dragging demand and supressing investment appetite. Secondly, Japanese companies tend to be conservative in investments to start the fiscal year and pick up orders as the year progresses.
5/15	7:50pm	Gross Domestic Product q/q	0.8%	0.6%	0.9%
		Preliminary version for 1st Quarter Provided by: Cabinet Office Official Figures: PDF Annualized GDP: 3.3%, forecast 2.5%, pr. 3.7% (4th Q) Japan's economy was up 0.8% in the 4th quarter compared to 0.9% growth in the 4th quarter. On an annual rate GDP was up 3.3%. The results were better than forecast, and were led primarily by exports to Asia and emerging markets such as Russia and countries in the Middle East. Increased demand from those markets helped offset a drop in demand from the US. With German growth also flying above expectations its apparent that this time around, the US slowdown has not reverberated into a major global slowdown. Exports accounted for a good portion of higher GDP as domestic demand is weakening, considering companies are being squeezed for profits by falling US sales, higher commodity prices and a stronger yen. Consumer confidence continues to deteriorate, a second release showed and inflation is also running at a fast pace, eating into worker's real income. Lower spending by businesses and consumers may have a stronger impact in the second quarter.
5/15	7:50pm	GDP Deflator	-1.4%	-1.5%	-1.3%
5/16	12:30am	Industrial Production m/m	-3.4%	-3.1%	-3.1%
		Final Version for March Provided by: Ministry of Economy, Trade and Industry
5/16	1:00am	Consumer Confidence	35.2	36.0	36.7
		"Household" Confidence for April Provided by: Cabinet Office Official Release: Page and data Consumer confidence declined again in Japan, falling to a measure of 35.2, reported the Cabinet Office. A reading below 50 implies contraction. Confidence is now at a new fresh 5-year low. Consumers are concerned about a slowing economy which is putting pressure on employment and wages. At the same time, inflation is driving up the prices of energy and food. The four sub-indexes all fell: Economic Well Being: 33, pr. 34.4 Income Growth: 37.5, pr 38.7 Employment Conditions: 36.0, pr. 37.6 Willingness to Buy Durable Goods: 34.2, pr. 36.2
5/19	7:50pm	Tertiary Industry Activity Index	0.3%	0.5%	-1.7%
		For March Provided by: Ministry of Economy, Trade and Industry Official Source: Indicator Page
5/19	11:04pm	BOJ Interest Rate Statement	0.50%	0.50%	0.50%
		Release from Bank of Japan The Bank of Japan held rates at 0.50%. The bank recently cut its estimate for growth in the economy while higher prices for energy and raw materials present a problem for inflation. It is a similar experience in all the major economies now. The bank released their monthly monetary policy assessment in which they said that exports should continue growing, but at a slower pace. Production and machine orders were also down as factories are faced with higher raw materials costs that squeeze profits. Waning demand from the US market will also have an impact despite stronger demand from emerging economies like China, India, Russia and the Middle East. Policy makers will be hard pressed to find any way to raise rates this year.
5/20	2:00am	BOJ Monetary Policy Report
		Provided by: Bank of Japan Official Release: Press Release (English) From the Release: "Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices. Exports have continued to increase. Corporate profits have been leveling off, albeit at a high level, and the pace of increase in business fixed investment has become slower. Private consumption has been firm in a situation where household income has continued rising moderately. On the other hand, public investment has been sluggish. Meanwhile, housing investment has been recovering moderately. With these developments in demand both at home and abroad, production has been more or less flat. Japan's economy is expected to grow at a slower pace for the time being and follow a moderate growth path thereafter."
5/21	7:50pm	All Industrial Activity Index	0.5%	-0.2%	-1.3% -1.4%
		For March Provided by: Ministry of Economy, Trade and Industry All Industries Activity Index y/y: -0.9%, pr. 1.7% (Feb), pr. 0.6% (Jan) Japan's all-industries index, which is a broad measure of economic activity, rose 0.5% between March and February beating forecasts. It had declined 1.3% in February. The monthly gain was led by an increase in services as industrial ouput was down. On the year, the index was down 0.9%.
5/21	7:50pm	Trade Balance	0.61T	0.79T	0.77T
		For April - Merchandise Trade Seasonally Adjusted Provided by: Ministry of Finance Total Merchandise Trade Balance: ¥0.485B, forecast ¥0.739T, pr. ¥1.118T (Mar), ¥970.0B (Feb) The Japanese trade surplus took a hit in April, falling to 610 billion, a decline of 46.3% compared to last year. Imports were up 11.9%, while exports grew 4% - a higher growth rate than the 2.3% seen in March. Imports were led by surging prices in oil and commodities. Though export growth remains strong to emerging economies, the European Union may be joining the list of the United States as a market whose demand for Japanese exports may be waning.
5/22	7:50pm	BOJ Meeting Minutes
		Provided by: Bank of Japan
5/26	7:50pm	Corporate Service Price Index y/y	0.5%	0.6%	0.4%
		For April Provided by: The Bank of Japan Indicator Page: Main Page Official Release: PDF CSPI m/m: 0.1%, pr. 0.4% (Mar), 0.3% (Feb), -1.2% (Jan)
5/28	7:50pm	Retail Sales y/y	0.1%	0.5%	1.0% 1.1%
		For April Provided by: Ministry of Economy, Trade and Industry Large Retailer's Sales y/y: -2.2%, forecast -1.1%, pr. 0.2% (Mar), 1.2 (Feb) Retail Sales m/m: -0.1%, forecast 0.0%, pr. 0.4% rev from 0.5%(Mar), -1.0% (Feb) Retail sales climbed 0.1% on the year in April, the weakest showing since July, and lower than expectations. Large retailers saw their sales fall 2.2%. Consumers are watching their spending as high inflation batters their confidence, a story seen in many of the major economies. Household spending was down last month, and is expected to decrease again in its report on Thursday evening. Wage increases are not keeping up with inflation, and consumers are cutting back purchases of new clothing and other items. At a time when exports are cooling as a result of a global slowdown, a decrease in domestic spending will only add problems to the Japanese economy in the second quarter.
5/28	7:50pm	Large Retailers	-2.2%	-1.1%	0.2%
5/29	7:15pm	Manufacturing PMI	47.7		48.6
		For May The NTC Research/Nomura/JMMA Purchasing Managers Index The NTC Research/Nomura/JMMA Purchasing Managers Index, which gives an early snapshot of the health of manufacturing, declined to a seasonally adjusted 47.7 in May from 48.6 in April. It was the 3rd straight month of contraction, and was below the boom-bust line of 50 for 6th time out of the last 9 months. May's level is the lowest in 6 years. Output was down as firms lowered production in the the face of an uncertain economic outlook and rising cost pressures. New orders were down as well, a sign that demand from home and abroad is cooling. GDP grew 0.8% in the first quarter, surprising forecasts. The economy will be hard pressed to reproduce those results in the second quarter as household spending and orders for production decline.
5/29	7:30pm	Consumer Price Index y/y	0.8%	0.9%	1.2%
		National CPI For April Latest Release Provided by: Statistics Bureau CPI Ex. Food y/y: 0.9%, forecast 1.0%, pr. 1.2% CPI Ex. Food & Energy y/y: -0.1%, forecast 0.0%, pr. 0.1% CPI m/m: -0.1% CPI Ex. Food m/m: 0.0% CPI Ex. Food & Energy m/m: 0.2% The measure of national consumer inflation, which lags the Tokyo index by 1 month, came in lower than expected for April. The headline annual inflation rate cooled from 1.2% to 0.8%. Excluding food, the annual rate was actually higher meaning food prices fell. Taking both food and energy costs out of the equation prices were actually 0.1% lower for April compared to the same time last year. The data suggests the main pressure on prices this past year continues to be energy, which is no surprise as oil continues to hit record highs. On the month, prices were down -0.1% and the core rate that excludes food and energy was up 0.2%. For the Tokyo CPI which measures price changes for the May period, headline annual inflation increased to 0.9% from 0.6% in April. Prices excluding food and energy rose 0.1%, higher than forecasts. Though national inflation cooled, this result may prove temporary if it follows the lead of the Tokyo index next month.
5/29	7:30pm	Tokyo Consumer Price Index y/y	0.9%	0.8%	0.6%
		For May Latest Release Provided by: Statistics Bureau Tokyo CPI Ex Food y/y: 0.9%, forecast 0.9%, pr. 0.7% Tokyo CPI Ex Food & Energy y/y: 0.1%, forecast 0.0%, pr 0.0% Tokyo CPI m/m: 0.5% Tokyo CPI Ex Food m/m: 0.4% Tokyo CPI Ex Food & Energy m/m: 0.3% Consumer prices in the Tokyo area were up 0.9% for the month of May compared to the same time last year. This was a jump from April's 0.6% reading. Excluding food, prices were up 0.9%, the same amount as the headline rate. Excluding energy and food prices rose 0.1%, higher than forecast. In the national rate, which lags the Tokyo CPI by one month, core prices were down 0.1%. The data suggests that inflation may pick up for May in the national measure as higher energy costs, propelled by record high oil prices, continue to be digested by the economy. On the month, inflation excluding food and energy rose 0.3%, with the headline rate at 0.5%. Increases to transportation and communication (2.0%), clothes (0.8%), housing (0.3%) and food (0.4%) were the main drivers of the price increase.
5/29	7:30pm	Household Spending y/y	-2.7%	-0.7%	-1.6%
		For April Provided by: Statistics Bureau Official Release: Summary Household spending showed a decline of 2.7% for April compared to the same time last year. This is lower than the 1.6% decline the index saw for the March period, and undershot forecasts of an improvement to -0.7%. Compared to last year, spending fell the most on food (-3.1%), housing (-7.2%), clothing & footwear (-4.1%) and education (-5.6%). Incomes were down 1.6% in real terms compared to last year, with disposable income declining -5.4%. Consumer spending has taken a turn for the worst as confidence is eroded by higher prices and lower real income. Conditions are increasingly difficult as energy prices eat into workers salaries, and global conditions are starting to hurt employment. The unemployment rate increased to 4% in April as more people are looking for a job in order to help make ends meet as a result of higher prices. Higher inflation, lower spending and tightening job conditions are sure to give the Bank of Japan a headache as they have abandoned their plans to gradually raise rates. Policy makers are in a bind as they cannot lower rates to spur growth if it will mean prices continue to accelerate. From the Release: "The average amount of monthly consumption expenditures per household for April 2008 was 310,695 yen, down 1.7% in nominal terms and down 2.7% in real terms from the previous year. The average amount of monthly income per household stood at 469,774 yen, down 0.6% in nominal terms and down 1.6% in real terms from the previous year. The amount of consumption expenditures was 343,586 yen, up 0.4% in nominal terms but down 0.6% in real terms from the previous year."
5/29	7:30pm	Unemployment Rate	4.0%	3.9%	3.8%
		For April (s.a.) Latest Release Provided by: Statistics Bureau The Japanese unemployment rate rose to 4% for April, seasonally adjusted, an increase of 0.2% from March's 3.8%. The increase was higher than expected and shows that the job market loosened, with a decrease of 150,000 jobs compared to the same time last year. The number of unemployed is up 70,000 on the year, and the participation rate declined 0.1% to 60.7%. The unemployment rate is on the rise at the same time as household spending is decreasing and prices continue to rise. This is a worrisome combination for Japanese workers. Households need more income to pay for higher energy and food costs. With jobs harder to find, households are cutting back on spending. Global growth has slowed in the 2nd quarter which may impact the export and manufacturing industries. Companies, already pinched by eroding profits as a result of their own energy costs, may now see less business. Its shaping up to be quite a bad situation for the economy and growth in Japan is sure to slow in the 2nd quarter. From the Release: "The number of employed persons in April 2008 was 64.29 million, an decrease of 150 thousand or 0.2% from the previous year. The number of unemployed persons in April 2008 was 2.75 million, an increase of 70 thousand or 2.6% from the previous year. The unemployment rate, seasonally adjusted, was 4.0%."
5/29	7:50pm	Industrial Production m/m	-0.3%	-0.5%	-3.4%
		Preliminary version for April Latest Release Provided by Ministry of Economy, Trade and Industry Industrial Production y/y: 1.8%, forecast 1.6%, pr. -0.7% (Mar) Industrial production declined for the second straight month, though the 0.3% decline was better than expected, and was a marked improvement from March's 3.4% drop. Shipments were up 0.7% on the month while inventories declined 0.9%. Firms are running down their inventory in anticpation of lower sales ahead. This month's decline in production was led by electronics and cars. The 3 items mentioned as the main culprits were large passenger vehicles, cell phones, and large LCD televisions. These sectors have cut back as foreign demand for cars and electronics is declining, as the slowdown from the US spreads to the UK and Euro-zone. Domestic household spending for April declined 2.7% compared to last year data showed today. Domestic demand for discretionary goods is sure to fall as Japanese workers are finding it harder to make ends meet as a result of higher prices, mainly for energy. The unemployment rate increased to 4% for April as well, meaning firms are also scaling back employment. All of these signs point to weaker production in the second quarter. In another release today, May's manufacturing PMI hit a 6-year low, another confirmation of the struggles the Japanese economy is facing. From the Release: "Industrial Production in April decreased 0.3% from the previous month, showing a decrease for the second consecutive month. It showed an increase of 1.8% from the previous year. The index in April was 106.2(seasonally adjusted). According to the Survey of Production Forecast in Manufacturing, Production is expected to increase 4.7% in May and to decrease 0.9% in June. Shipments in April increased 0.7% from the previous month, showing a increase for the first time in two months. It showed an increase of 2.5% from the previous year."
5/30	1:00am	Housing Starts y/y	-8.7%	-11.8%	-15.6%
		For April Provided by: Ministry of Land, Infrastructure, Transport and Tourism Official Release: Excel Data (.xls) Annualized Housing Starts: 1.151M, forecast 1.111M, pr. 1.088M Construction Orders y/y: -8.4%, forecast -16.0%, pr. 6.4% Housing starts were down 8.7% in annual terms, the 10 straight month that the indicator has been negative. The figure was better than March's 15.6% decline, and forecasts for a decline of 11.8%. Construction orders turned negative, falling 8.4% on the year compared to March's 6.4% rise. Firms making homes are facing higher costs, while at the same time there is less demand for home purchases. The increase in annualized starts to 1.151 million was an improvement from last month's 1.088 million, so that is a postiive development.

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October
6th, 2008

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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.