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 August, 2008

Date	EST	Indicator	Actual	Forecast	Previous
8/3	7:50pm	Monetary Base y/y	-0.7%		0.4%
		For July
8/6	1:00am	Leading Index	91.2%	90.8%	92.9% 92.6%
		Preliminary Measure for June Provided by: Cabinet Office Coincident Index: 101.7%, forecast 101.7%, pr. 103.0% (May), 101.7% (Apr)
8/6	7:50pm	Core Machinery Orders m/m	-2.6%	-9.5%	10.4%
		For June "Private Sector Machinery Orders excl. volatile items" Provided by: Cabinet Office Official Release: Summary From the Release: The total value of machinery orders received by 280 manufacturers operating in Japan fell by 4.8% in June from the previous month on a seasonally adjusted basis. In the April-June period it decreased by 1.4% compared with the previous quarter. Private-sector machinery orders, excluding volatile ones for ships and those from electric power companies, fell a seasonally adjusted by 2.6% in June, and showed increased of 0.6% in the April-June period. In the July-September period the total amount of machinery orders was forecasted to fall by 2.9% and private-sector orders, excluding volatile ones, were forecasted to decrease by 3.0% from the previous quarter respectively. This forecast was basically made by summing up the figures from 280 machinery manufacturers."
8/8	1:00am	Eco Watchers Survey	29.3		29.5
		For July Provided by: Economy Watchers Survey The Economic Watcher Survey is at a historical low at 29.3 in July, underscoring growing concerns of job losses. This is the fifth straight month of decline in this outlook index.The growing pessimism is warranted as firms are cutting jobs and going out of business, as the number of corporate bankruptcy cases jumped 23.6% on the yea.
8/11	2:00am	Machinery Tool Orders y/y	-8.9%		-2.5%
		Preliminary Measure for June Provided by: Cabinet Office Machinery tool orders took a significant step backwards in June, declining 8.9% on the year. In May, orders were down 2.5%. Domestic orders were down 10.3% y/y, and foreign orders lost 7.9% compared to the previous month 2.7% decline. Manufacturing will continue suffering if companies limit their investment in machinery tools. They may do so if they see weak sales ahead.
8/11	7:50pm	Corporate Goods Price Index y/y	7.1%	5.7%	5.6%
		For July Provided by: Bank of Japan Importance: Medium CGPI m/m: 2.0%, forecast 0.8%, pr. 0.8% (Jun), 1.1% (May), 0.6% (Apr) Inflation at the wholesale level accelerated to a 27-year high of 7.1% in July compared to a year ago. That's a big jump on the 5.6% increase seen in June, and overshoots expectations. This index measures the price that companies pay to procure goods. Companies' profits are going to be squeezed as their prices keep climbing, just as sales weaken from home and abroad. Japanese GDP, which will be released later today, is expected to show a -0.6% change for the 2nd quarter. Add to that high inflation, the 3rd quarter may not be any better.
8/12	12:30am	Industrial Production m/m	-2.2%	-2.0%	-2.0%
		Final version for June Latest Release Provided by Ministry of Economy, Trade and Industry Industrial Production y/y: 0.0%, pr. 0.2% (Jun-p), 1.1% (May), 1.8% (Apr) The final version of industrial production for June, showed a larger than initially estimated deterioration in output. On the month output was down 2.2% compared to an initially estimated 2.0% drop. Output had grown 2.8% in May on a monthly basis. Compared to a year ago, output was also lower than the preliminary release decreasing from 0.2% to 0.0% or no growth. Shipments were down while inventories increased.
8/12	1:00am	Consumer Confidence	31.4	32.1	32.6
		"Household" Confidence for July Provided by: Cabinet Office Official Release: Data in .XLS (Excel) Japanese household confidence fell yet again in July, declining to 31.4 from 32.6 in June. That's the lowest level since data began in June 1982. Higher prices for energy and food, a weakening labor market, and slower economic growth are all weighing on Japanese moods and spending habits. Households have cut spending to cope with rising costs which cuts into the bottom line of sales for companies, which are currently straddled with high prices themselves.
8/12	7:50pm	Gross Domestic Product q/q	-0.6%	-0.6%	0.8% 1.0%
		Preliminary Version for 2nd Quarter Provided by: Cabinet Office Official Figures: PDF Nominal GDP q/q: -0.7%, forecast -0.8%, pr. 0.2% (1Q) Annualized GDP: -2.4%, forecast -2.3%, pr. 3.2% (1QF), 3.3% (1Q Rev) Japanese GDP hit forecasts of a 0.6% decline, with annualized GDP falling to -2.3%. The economy had expanded a downwardly revised 3.2% in annual terms in the 1st quarter. Japanese stocks as measured by the Nikkei 225 Stock Average fell 2.1% on the news, the most since August 1st. Exports declined for the quarter, the first time that's happened in 3 years. Slumping sales to the US have been joined by weak demand from Europe and even Asia. With consumers weighed down by high inflation and a slackening job market, domestic spending is slackening. The Yen gained as investors and traders cut short so called "carry-trade" positions. A sharp slowdown in the 2nd largest economy will only accelerate the global slowdown already underway. There was a bout of risk aversion as traders sold riskier assets.
8/12	7:50pm	Current Account	0.49T	0.49T	2.00T
		For June, Unadjusted Provided by: Ministry of Finance Official Release: PDF Current Account (s.a.): 1.29T, forecast 1.084T, pr. 2.032T (May), 1.51T (Apr) Trade Balance - BOP Basis: 0.252T, forecast 0.293T, pr. 0.529T (May), 0.634T (Apr) Japan's June current account surplus (in unadjusted terms) was down 67.4% on the year to Y493,3 billion. It's the 4th straight month the surplus has declined. The report shows, just like GDP data today, weaker exports to the US and Europe reflects weaker demand for Japanese products.
8/13	7:50pm	Tertiary Industry Activity Index	-0.8%	-0.3%	-0.2%
		For June Provided by: Ministry of Economy, Trade and Industry Official Source: Indicator Page Japan's tertiary index, which measures spending in the services sector, was down 0.8% in June. That's the second straight month that spending was negative and shows lower outlays in the wholesale/retail (-1.7%) and transportation sectors (-2.0%). The services sector employs about 1/2 of Japanese workers. It's another bit of data showing the Japanese economy in a bind, as it faces lower spending by consumers in the face of high inflation and a loosening labor market.
8/18	11:30pm	BOJ Interest Rate Statement	0.50%	0.50%	0.50%
		Release from Bank of Japan Official Release: Statement on Monetary Policy From the Release: " Economic growth has been sluggish against the backdrop of high energy and materials prices and weaker growth in exports. While growth will likely remain sluggish for the time being, it is expected to return gradually onto a moderate growth path as commodity prices level out and overseas economies move out of their deceleration phase. The CPI inflation rate (excluding fresh food) is currently around 2 percent, highest since the first half of 1990s, due to increased prices of petroleum products and food. It is expected to be somewhat higher over the coming months but to moderate gradually thereafter. Thus it is likely that the economy will return onto a sustainable growth path with price stability. On prices, global inflationary pressures remain high. 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, there will be an increased risk that prolonging the period of accommodative financial conditions will lead to swings in economic activity and prices."
8/19	3:20am	BOJ Governor Shirakawa Speaks
		Release from Bank of Japan Official Release: Statement on Monetary Policy See "BOJ Interest Rate Statement" for commentary.
8/19	7:50pm	All Industrial Activity Index	-0.9%	-0.9%	0.4%
		For June Provided by: Ministry of Economy, Trade and Industry Official Release: PDF The All Industries Activity Index was down 0.9% led by steep falls in construction (-0.9%), production (-1.3%) and services (-0.8%).
8/20	7:50pm	Trade Balance	0.17T	0.35T	0.14T
		For July (s.a.) Provided by: Ministry of Finance Previous Release: PDF Trade Balance (n.s.a.): 0.091T, forecast 0.235T, pr. ¥0.138T, ¥0.365T Japan's trade balance narrowed for a 5th straight month in July as Japan pays more for oil on their import bill while growth to the US, Europe and other nations struggles. The unadjusted balance came in at 91.1 billion yen, a 86.6% decline from a year ago.On a seasonally adjusted basis, the balance was 170 billion yen. China picked up the slack, and for the first time exports to China outpaced those to the US. Exports can be expected to continue deteriorating as global demand weakens.
8/21	2:00am	BOJ Monetary Policy Report
		Provided by: Bank of Japan Official Release: Press Release (English) From the Release: "Japan's economic growth has been sluggish against the backdrop of high energy and materials prices and weaker growth in exports. The pace of increase in exports has slowed. Business fixed investment has been leveling off, as corporate profits have been decreasing mainly due to the deterioration in the terms of trade. Private consumption has been relatively weak, mainly due to sluggish growth in household income and the increase in prices of petroleum products and food. The recovery in housing investment has been stalled. Public investment, meanwhile, has been sluggish. With these developments in demand both at home and abroad, production has been relatively weak. While growth will likely remain sluggish for the time being, Japan's economy is expected to gradually return onto a moderate growth path as international commodity prices level out and overseas economies move out of their deceleration phase."
8/21	7:50pm	BOJ Meeting Minutes
		For July Provided by: Bank of Japan Official Release: PDF From the Release: "Members shared the following view: (1) Japan's economic growth was slowing further reflecting weaker growth in business fixed investment and private consumption against the backdrop of high energy and materials prices; (2) while growth would likely remain slow for the time being, the economy was expected to gradually return onto a moderate growth path thereafter; and (3) the CPI inflation rate (excluding fresh food) was currently around 1.5 percent year on year due to increased prices of petroleum products and food, and was expected to gradually moderate after becoming somewhat elevated in coming months. Based on the discussion, members made an assessment in terms of the first perspective, that is to say, they assessed the most likely outlook for economic activity and prices. They agreed that the probability of Japan's economy remaining on a sustainable growth path with price stability was relatively high. Members then made an assessment in terms of the second perspective, that is to say, they examined the risks that they considered most relevant to the conduct of monetary policy, including risks that had a longer time horizon than the first perspective. Regarding economic developments, members shared the following view: (1) global financial markets remained unstable as evidenced by the fact that, due mainly to market concerns about further losses that U.S. and European financial institutions might incur, various credit spreads had been widening again and stock prices had fallen; (2) there were downside risks to the world economy, mainly reflecting sluggish growth in the U.S. economy; and (3) weaker income generation due to the upsurge in international commodity prices had the potential to weigh on domestic private demand. As for prices, members agreed on the following view: (1) inflationary pressures were increasing further globally given the high international commodity prices, particularly crude oil prices; and (2) in Japan, it was necessary to be mindful of upside risks to inflation due to changes in, for example, the inflation expectations of households and the price-setting behavior of firms in addition to developments in energy and materials prices."
8/25	7:50pm	Corporate Service Price Index y/y	1.3%	1.4%	1.3% 1.2%
		For July Provided by: The Bank of Japan Indicator Page: Main Page Official Release: PDF CSPI m/m: -0.1%, pr. 0.5%, 0.3% (May), 0.1% (Apr), 0.4% (Mar) Companies paid 1.3% more for services compared to the same time last year. This matched June's upwardly revised figure and is the 20th month in a row the index shows rising costs. The number did come in lower than expectations, and on the month prices were down 0.1%. The CSPI tracks prices of a wide range of corporate services, including finance and insurance charges, the cost of shipping goods by road, rail air, or sea, software development costs, telecommunications charges and legal and accounting fees. Looking at annual terms transportation costs are up 5.9%, led by a 27.5% increase to the category "overseas marine transportation."
8/28	7:30pm	Tokyo Consumer Price Index y/y	1.3%	1.6%	1.6%
		For August Latest Release Provided by: Statistics Bureau Tokyo CPI Ex Food y/y: 1.5%, forecast 1.7%, pr. 1.6%, 1.3% (Jun) Tokyo CPI Ex Food & Energy y/y: 0.2%, forecast 0.3%, pr 0.3%, 0.3% (Jun) Tokyo CPI m/m: 0.1%, pr. -0.1% (Jul), 0.3% (Jun), 0.5% (May) Tokyo CPI Ex Food m/m: 0.2%, pr. 0.1% (Jul), 0.2% (Jun), 0.4% (May) Tokyo CPI Ex Food & Energy m/m: 0.2%, pr. -0.2% (Jul), -0.1% (Jun), 0.3% (May) Consumer prices in the Tokyo area were up 1.3% in August compared to a year ago. That was below forecasts of no change from the 1.6% seen in July. Excluding food, prices cooled to a 1.5% rate. Excluding both food and energy, prices rose a slower 0.2% on the year. The lower inflation data stands in high contrast to the National CPI which saw prices climb higher than expected in July. The Tokyo index functions as a leading index since its data is more relevant by one month. Taking a look at the month change data it can be seen that prices were all higher than their totals in July.
8/28	7:30pm	Consumer Price Index y/y	2.3%	2.2%	2.0%
		National CPI For July Latest Release Provided by: Statistics Bureau CPI Ex. Food y/y: 2.4%, forecast 2.3%, pr. 1.9%, 1.5% (May), 0.9% (Apr) CPI Ex. Food & Energy y/y: 0.2%, forecast 0.1%, pr. 0.1%, -0.1% (May), -0.1% (Apr) CPI m/m: 0.2%, pr. 0.5% (Jun), 0.8% (May), -0.1% (Apr) CPI Ex. Food m/m: 0.4%, pr. 0.4% (Jun), 0.8% (May), 0.0% (Apr) CPI Ex. Food & Energy m/m: -0.1%, pr. 0.0% (Jun), 0.1% (May), 0.2% (Apr) National consumer prices rose above 2% in July for the first time in a decade. Headline inflation was up 2.3% compared to a year ago. Core prices, which exclude fresh food was rose to 2.4% from 1.9% in July. Taking energy prices, along with food, out of the CPI brings the annual pace down to 0.2%, which was also above expectations. The government is planning a spending program to help Japanese businesses and individuals to help cope. The data is from July, which saw high inflation around the globe, and in monthly terms inflation was up 0.2%, lower than June's 0.2%. The Tokyo CPI which leads the national CPI by one month, came in lower than expected.
8/28	7:30pm	Household Spending y/y	-0.5%	-1.8%	-1.8%
		For July (in real terms) Provided by: Statistics Bureau Latest Release: Summary Household spending surprised forecasts on the upside, declining only 0.5% on the year in July. Forecasts had called for a 1.8% reduction that matched June's figure. Households spent more on housing and furniture, but cut back on food, fuel, and transportation compared to a year ago. It's a welcome sign as it means consumer, though still keeping their pocketbooks close to their chest, are not reducing spending by levels first thought. Today's other data from Japan showed better than expected retail sales, increased industrial production and a reduction in the unemployment rate. Combined together today's data shows a Japanese economy that may be stronger than initially thought.
8/28	7:30pm	Unemployment Rate	4.0%	4.1%	4.1%
		For July (s.a.) Provided by: Statistics Bureau The unemployment rate in Japan notched down to 4.0% in July, surprising forecasts. The unemployment rate had climbed from 3.8% in March to 4.1% in June, as more members of the household entered the labor market to meet the higher cost of living, including higher prices for food and energy. The labor force participation rate declined 0.3% to 60.3%, which means some of the unsuccessful job seekers dropped out of the labor market. There was also job creation in the general service and medical/welfare service sectors.
8/28	7:50pm	Retail Sales y/y	1.9%	1.3%	0.3%
		For July Provided by: Ministry of Economy, Trade and Industry Official Release: Data Large Retailers y/y: -0.7%, forecast -1.7%, pr. -3.9% (Jun), -2.0% (May) Retail Sales m/m: 0.0%, forecast 0.1%, pr. 0.0% (Jun), -0.1% (May) Retail sales in Japan rose strongly in July. Sales rose 1.9% on the year, up from 0.3% in June. The figure beat forecasts and shows that even though households continue to cut back spending, retail sales are staying positive. On the month htough, sales were flat, lower than the forecast of a 0.1% increase. Sales at large retailers were down 0.7%, an improvement from the levels seen the last three months.
8/28	7:50pm	Large Retailers	-0.7%	-1.7%	-3.9%
8/28	7:50pm	Industrial Production m/m	0.9%	-0.5%	-2.2%
		Preliminary version for July Latest Release Provided by Ministry of Economy, Trade and Industry Ind. Prod. y/y: 2.0%, forecast -0.5%, pr. 0.2%, 1.2% (May), 1.8% (Apr) Industrial production climbed 0.9% in July, the preliminary estimate showed. That surprised forecasts on the upside as expectations were for another month of declines. Production was down 2.2% in June.
8/29	1:00am	Housing Starts y/y	19%	14.0%	-16.7%
		For July Provided by: Ministry of Land, Infrastructure, Transport and Tourism Previous Release: Excel Data (.xls) Annualized Starts: 1.144M, forecast 1.099M, pr. 1.130M, 1.072 (May) Construction Orders y/y: 42.3%, pr. -11.7%, -25.2% (May), -8.4% (Apr)
8/31	9:30pm	Average Cash Earnings y/y	0.3%	0.3%	0.4% -0.6%
		For July Provided by: Ministry of Health, Labor and Welfare

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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.