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.

Go to Central Bank Watch Go to Economic and Financial Profile

Japan's Fundamental Indicators and Chart

Monthly Data for June, 2008

Date	EST	Indicator	Actual	Forecast	Previous
6/1	9:30pm	Average Cash Earnings y/y	0.6%	1.3%	1.5% 1.2%
		For April Provided by: Ministry of Health, Labor and Welfare
6/2	7:50pm	Monetary Base y/y	-0.9%	-0.9%	-2.8%
6/3	7:50pm	Capital Spending q/q	-4.9%	-9.6%	-7.7%
		For 1st Quarter Provided by: Ministry of Finance Cap Spending excl. Software (1Q): -5.3%, forecast -7.6%, pr. -7.3% Capital spending in the 1st quarter declined 4.9% in the 1st quarter. The figure was better than the forecast 9.6% drop, and was better than the -7.7% drop in the 4th quarter. The 4th quarter was the biggest fall since July-September 2002. Today's report may be good enough to impact GDP with an upward revision. The Japanese economy grew 0.8% in the 1st quarter. However, firms are seeing their profits squeezed by higher raw materials costs, especially as a result of energy, and slowing sales in the 2nd quarter as consumers face weakening economic conditions. Those two factors may limit capital spending going forward this year.
6/8	7:50pm	M2+CD Money Supply y/y	2.0%	2.0%	1.9%
6/9	1:00am	Leading Index	92.8%	93.0%	90.8%
		Preliminary Measure for April Provided by: Cabinet Office Coincident Index: 101.7%, forecast 102.1%, pr. 102.4%
6/9	3:00am	Eco Watchers Survey	32.1	34.5	35.5
		For May Release from Economy Watchers Survey
6/9	7:50pm	Core Machinery Orders	5.5%	3.1%	-8.3%
		For April "Core Private Sector Machinery Orders" Provided by: Cabinet Office Businesses revived their appetite for capital investment which has been suppressed by high energy and raw materials costs eating into profits. Q1 capital investment fell 4.9%. There are still a lot of downside, and the positive data does not convince economists that there is a turnaround. Demand from emerging economies will have to be strong. China for example imports raw materials from countries such as Australia and will also have a need for machinery in it's economic advancements. With Chinese standard of living improving, Japan will also benefit from an increase in demand for electronics and other exports.
6/10	2:00am	Machinery Tool Orders y/y	1.4%		0.4%
		Preliminary measure for May See Core Machinery Tools Order for commentary on April's figures.
6/10	7:50pm	Corporate Goods Price Index y/y	4.7%	3.9%	3.9% 3.7%
		For May Provided by: Bank of Japan Importance: Medium CGPI m/m: forecast 0.7%, pr. 0.6% (Apr), 0.5% (Mar)
6/10	7:50pm	Gross Domestic Product q/q	1.0%	0.9%	0.8%
		Final Version for 1st Quarter Provided by: Cabinet Office Official Figures: PDF Nominal GDP q/q: 0.5% forecast 0.5%, pr. 0.4% Annualized GDP: 4.0%, forecast 3.8%, pr. 3.3% (Rev. 1st Q) Economic growth was underestimated in prelimary releases. The main revision came from capital spending, which showed growth of 0.2%, instead of the expected fall of 0.9%. Despite this revision for Q1, projection for Q2 growth already started on a conservative note with declining corporate profits, household spending, factory production, as well as rising unemployment. More from Bloomberg.com The rest of the year is expected to be at near recession like pace because of the global slowdown which leads to the prospect of softening exports, a main driver of the Japanese economy. However, much like the case with Australia, Japan may be saved from a major downturn if demand from emerging economies increase. That will depend on whether countries such as China will get to its next level of its economic expansion, when demand for consumer products such as Japanese electronics will be lifted by a better standard of living.
6/10	7:50pm	Current Account	1.38T	1.63T	2.88T
		For April, Unadjusted Current Account Provided by: Ministry of Finance Official Release: PDF Seasonally Adjusted Current Account: 1.510T, forecast 1.825T, pr. 2.096T Trade Balance - BOP Basis: 0.634T, forecast 0.600T, pr. 1.025T
6/12	11:23pm	BOJ Interest Rate Statement	0.50%	0.50%	0.50%
		Release from Bank of Japan The Bank of Japan held rates steady at 0.5% as policy makers are watching the effects of high inflation, especially on oil and food prices, which can slow current expectations for economic growth. Firms are facing higher production costs which are squeezing profits, and causing some companies to lay off staff. The bank signaled that the economy was at a turning point and that the longest postwar expansion may be over. GDP was strong in the 1st quarter for Japan, but a drop in household spending, an increase in unemployment and weak production all point to the 2nd quarter showing weaker growth. Despite slowing growth, the mood among central banks has been a shift towards combating inflation as was seen with the Bank of Canada, and recent statement by Fed Chairman Bernanke. That means the Bank of Japan is unlikely to lower rates in order to help its struggling economy, and must take a wait and see approach for the next several months.
6/13	1:00am	Consumer Confidence	33.9	34.5	35.2
		"Household" Confidence for May Provided by: Cabinet Office Official Release: Page and data Consumer confidence fell again in Japan, dropping to 33.9, below forecasts. It was the lowest level since December 2001. The Japanese economy is starting to feel the strain of higher inflation and a global slowdown that is cutting into Japanese exports. The sub-indicators showed the index for general well-being decrease to 31.5 from 33, the income growth index declined 36.6 from 37.5, the employment conditions index was down to 34.9 and the index for willingness to buy durable goods fell to 32.7. Weaker consumer confidence, a loosening job market, and higher prices for goods and energy should translate into weaker retail sales and poorer performance by firms. This will only put more strain on the economy, and perhaps give the central bank pause and consider reducing rates. With inflation running high, the Bank is hard pressed to follow through with that kind of action.
6/13	2:00am	BOJ Monetary Policy Report
		Provided by: Bank of Japan May's Official Release: Press Release (English)
6/16	7:50pm	Tertiary Industry Activity Index	1.8%	0.5%	0.3%
		for April Report from the Ministry of Economy, Trade and Industry (METI) Spending increased in information/communication service as well as wholesale/retail sector, propping up the overall services index to 110.4, or a 1.8% growth in April, according to the METI. Compound services (postal service) and eating and drinking accomodations as well as learning support services saw lower spending.
6/17	7:50pm	BOJ Meeting Minutes
		for June 13 BoJ Interest Rate Meeting Provided by the Bank of Japan Official Release (pdf) From the release: Members agreed on the following assessment of the current state of Japan's economy: economic growth was slowing, mainly due to the effects of high energy and materials prices; the economy was likely to grow at a slower pace for the time being and follow a moderate growth path thereafter; however, due attention should continue to be paid to factors such as uncertainty regarding future developments in overseas economies and global financial markets, and to the effects of high energy and materials prices. Despite the concern for inflation, a rate hike is unlikely due to the current conditions for corporate profits and business investments, among other risks of slowdown.
6/18	7:50pm	All Industrial Activity Index	0.8%	0.3%	0.3% 0.5%
		For April Provided by: the Ministry of Economy, Trade and Industry (METI)
6/22	7:50pm	BSI Large Manufacturing q/q	-15.1	-17.0	-12.9
		For 2nd Quarter BSI Large All Industry (1Q): -15.2, pr. -9.3% (1Q) Sentiment among large companies in Japan fell to -15.1 for the 2nd quarter, which is the lowest since this series began being kept in its current form in 2004. The index subtracts the percentage of large companies reporting deteriorating business conditions from the percentage of those reporting improvement and covers 14,900 companies. Smaller companies are having a hard time as they face rising input costs and in an environment of slowing growth are unable to raise prices for fear sales will falter. Companies see weaker corporate profits ahead with manufacturers the most pessimistic.
6/24	7:50pm	Trade Balance	0.64T	0.41T	0.64T 0.61T
		For May - Merchandise Trade Seasonally Adjusted Provided by: Ministry of Finance Total Merchandise Trade Balance: ¥0.365T, forecast ¥0.030T, pr. ¥0.479T The trade balance, which was in surplus, surprised forecasts on the upside increasing ¥365 billion ($3.4 billion). Exports decreased to Europe and have been faltering for the US market for several months now, but China, other parts of East Asia, the Middle East and Russia picked up the slack. Exports rose 3.7% compared to a year ago, only slightly off the pace of April's 3.9%. Imports however advances 4.4% as a result of surging oil prices and increases to prices of other commodities. The unadjusted trade balance deteriorated 7.6% on the year, but this was much better than forecasts. The Japanese economy has been propped up by export growth as domestic demand shrinks in the face of higher inflation and tougher economic conditions. Companies are facing squeezing profits as lower sales coincide with higher prices for raw materials and transportation. If exports cool, the Japanese economy will really start to strain and slowdown GDP growth.
6/24	7:50pm	Corporate Service Price Index y/y	0.6%	0.5%	0.5%
		For May Provided by: The Bank of Japan Indicator Page: Main Page Official Release: PDF CSPI m/m: 0.2%, pr. 0.1% (Apr), 0.4% (Mar), 0.3% (Feb), -1.2% (Jan) Prices for services paid by coporations rose 0.6% on the year in May, higher than the previous month and above teh forecast. On the monthe prices rose 0.2%, also faster than in April. The biggest contributor to the increase was transportation costs which added 0.27% to the 0.6% figure, or close to half of the increase. This should not be a surprise as fuel costs are rising at extrodinary rates, affecting ship chartering serrvices, ocean freight, and air passenger transportation. Prices for advertising services and leasing and renting fell for the year.
6/26	7:30pm	Consumer Price Index y/y	1.3%	1.3%	0.8%
		National CPI For May Latest Release Provided by: Statistics Bureau CPI Ex. Food y/y: 1.5%, forecast 1.4%, pr. 0.9% CPI Ex. Food & Energy y/y: -0.1%, forecast 0.0%, pr. -0.1% CPI m/m: 0.8%, pr. -0.1% CPI Ex. Food m/m: 0.8%, pr. 0.0% CPI Ex. Food & Energy m/m: 0.1%, pr. 0.2% The national core inflation rate, which excludes food, rose 1.5% on the year in May, compared to April's 0.9%. This rise beat out forecasts. The rise is not a result of increased economic expansion, but rather the higher costs of global oil and commodity prices. Consumer spending has already declined the last 3 months which has cut into sales of firms. Lower sales plus higher costs for production means companies profits are being squeezed. The whole scenario is gloomy, and leaves the Bank of Japan little room to maneuver in order to limit inflation. Hiking rates will only add extra burden to consumers and firms, slowing growth.
6/26	7:30pm	Tokyo Consumer Price Index y/y	1.5%	1.2%	0.9%
		For June Latest Release Provided by: Statistics Bureau Tokyo CPI Ex Food y/y: 1.3%, forecast 1.1%, pr. 0.9% Tokyo CPI Ex Food & Energy y/y: 0.3%, forecast 0.2%, pr 0.1% Tokyo CPI m/m: 0.3%, pr. 0.5% Tokyo CPI Ex Food m/m: 0.2%, pr. 0.4% Tokyo CPI Ex Food & Energy m/m: -0.1%, pr. 0.3% Consumer inflation in the Tokyo area increased 1.5% in June compared to a year ago. Core inflation, excluding food was up 1.3%, and taking both food and energy from the equation prices were up 0.3%. Both of those figures are big jumps from the previous month's results and beat economists forecasts. On the month, the figures cooled somewhat. Higher inflation is putting the clamps on consumer spending while increasing the operating costs to firms thereby squeezing profits. The economy may be set to enter a period "stagflation", a time of slow growth but higher inflation.
6/26	7:30pm	Household Spending y/y	-3.2%	-2.0%	-2.7%
		For May Provided by: Statistics Bureau Latest Release: Summary Household spending fell another 3.2% in May compared to the same time year, the third straight month of declines. Consumers continue to feel gloomy and are tightening their spending, as rising inflation and a weakening labor market pressure households. Core inflation, excluding food, rose 1.5% from a year ago, and demand for Japanese electronics and cars may be curtailed by slowing growth in other economies. The combination of factors will work to lower 2nd quarter GDP. Stock markets in Japan fell to a 2 month low, the 7th day in a row stocks declined.
6/26	7:30pm	Unemployment Rate	4.0%	4.0%	4.0%
		For May (s.a.) Latest Release Provided by: Statistics Bureau
6/26	7:50pm	Industrial Production m/m	2.9%	2.8%	-0.2%
		Preliminary version for May Latest Release Provided by Ministry of Economy, Trade and Industry Industrial Production y/y: 1.2%, forecast 1.2%, pr. 1.8%
6/26	7:50pm	Retail Sales y/y	0.2%	-0.1%	0.1%
		For May Provided by: Ministry of Economy, Trade and Industry Large Retailer's Sales y/y: -2.1%, forecast -1.6%, pr. -2.2% (Apr), 0.2% (Mar) Retail Sales m/m: -0.2%, forecast -0.5%, pr. -0.1% (Apr), 0.4% (Mar) Retail sales fell 0.2% on the month in May, and were up 0.2% on the year. Both figures beat forecasts. The sub index that shows large retailer's sales declined 2.1%, a bigger fall than expected. The data offsets another weak household spending release and may indicate that consumers, though feeling pressured by higher prices, are still buying goods. The figure is not adjusted for inflation, so the gains may only reflect rising costs for food and energy. With inflation continuing to climb, as today's results show, demand will cool and sales may turn negative.
6/26	7:50pm	Large Retailers	-2.1%	-1.6%	-2.2%
6/29	7:15pm	Manufacturing PMI	46.5		47.7
		For June The NTC Research/Nomura/JMMA Purchasing Managers Index Manufacturing activity in Japan fell to the lowest level in more than six years in June, as uncertainty over the economic outlook made firms cut back their spending and new orders. The PMI gives an early snapshot of the health of manufacturing and has been in contraction the last 4 readings, and below the 50 boom-bust level for 7 of the last 10 months.
6/30	1:00am	Housing Starts y/y	-6.5%	-3.7%	-8.7%
		For May Provided by: Ministry of Land, Infrastructure, Transport and Tourism Official Release: Excel Data (.xls) Annualized Starts: 1.072M, forecast 1.113M, pr. 1.151M (Apr), 1.088M (Mar) Construction Orders y/y: -25.2%, pr. -8.4% (Apr), 6.4% (Mar)
6/30	7:50pm	Tankan Large Manufacturers Index	5	3	11
		For 2nd Quarter Provided by: Bank of Japan Official Release: PDF Confidence among Japan's manufacturers fell to a 4-year low in the 2nd quarter, with profits set to decline for the first time since the 2001 recession. The index fell to 5 points in June, from 11 in March, though it was expected to fall even further. The Japanese economy is straining as consumers pressured by a weaker labor market and higher inflation cut back on spending. Lower sales coincide with higher costs for companies for energy and commodities, eroding profits. With the slowdown that started in the US spreading to the UK and the Euro-zone, Japan's export industry will have to rely on emerging markets such as China and Russia to bolster demand. Companies said they will increase capital spending 2.4%, a poor reading, as they prepare for a slowdown.
6/30	7:50pm	Tankan Non-Manufacturers Index	10	8	12
		For 2nd Quarter Provided by: Bank of Japan Official Release: PDF
6/30	9:30pm	Average Cash Earnings y/y	0.2%	0.7%	0.8% 0.6%
		For May Provided by: Ministry of Health, Labor and Welfare Wages rose 0.2% in May, the slowest pace this year. This will bode well for Japanese consumers as conditions in the labor market have loosened recently while prices for energy, food and other goods continues to rise. Households have responded by cutting back on spending as much as possible.

Previous Month's Releases

Next Month's Releases

Central Bank Watch - Latest Bank of Japan Decision

Back to top»

July
14th, 2008

Actual

Forecast

Revised Form

0.50%

N/A

Release from Bank of Japan
Official Release: PDF

The Bank of Japan held rates at 0.5% amid weaker growth in teh economy. Consumers and firms are being pressured by higher food, energy, and raw-materials costs, which is cutting into spending. The Bank lowered its projections for growth this year. The economy is now expected to grow 1.2% through the year ending March 31, slower than the 1.5% forecast on April 30th.

From the Release: "Economic growth is slowing further reflecting weaker growth in business fixed investment and private consumption against the backdrop of high energy and materials prices. While growth will likely remain slow for the time being, it is expected to gradually return onto a moderate growth path thereafter. CPI inflation rate (excluding fresh food) is currently around 1.5 percent due to increased prices of petroleum products and food. CPI inflation is expected to gradually moderate after becoming somewhat elevated in coming months. These suggest that the possibility of the economy remaining on a sustainable growth path with price stability is relatively high.

With regard to risk factors, global financial markets remain unstable and there are downside risks to the U.S. and the world economy. In addition, weaker income generation due to upsurge in commodity prices has the potential to weigh on domestic private demand. These downside risks to the economy demand attention. On prices, inflationary pressures are increasing globally. In Japan, it is necessary to be mindful of upside risks due to changes in the inflation expectations of households and the price-setting behavior of firms in addition to developments in energy and materials prices. Meanwhile, if the downside risks to the economy turn out to decrease, this will increase the risk of possible swings in economic activity and prices due to prolonged period of accommodative financial conditions"

Go to Japan's Interest Rate Fundamental Indicator Page

Central Bank Watch - Bank Officials' Comments

Back to top»

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.

See archived comments

Central Bank Watch - Latest Bank of Canada Decision

Back to top»

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.