Bank of Japan Preview

July 10, 2012

The Bank of Japan will not immediately join its counterparts in the euro area, China, and Britain, which seemingly eased in coordinated fashion last Thursday.  A two-day meeting of the Bank of Japan Policy Board, which begins Wednesday, will neither cut the interest rate target nor expand quantitative easing.  The target range for the overnight money rate of zero to 0.1% since October 2010 already constitutes a virtual zero rate stance, and the BOJ’s asset buying program was increased twice — in February and again in April — during the first half of 2012.  Three signs that officials are not preparing to ease at this time are

  • Last week’s quarterly central bank survey of regional trends, which bumped up the assessment of all nine areas.  Such was the first concurrent improvement since October 2009.
  • Last month’s overall economic assessment by the Bank of Japan also issued a stronger rating.  Officials observed that Japan has started to pick up moderately, with boosts from consumption and post-quake reconstruction.
  • Japanese real GDP expanded 4.7% at an annualized rate during 1Q12.  Annualized growth over the past three quarters as been 4.2% compared to 2.2% in the United States and negative 0.2% in the euro area.

Recent monthly data, however, depict a continuing fragile economy in Japan should further shocks arise.  The seasonally adjusted current account surplus narrowed from JPY 589 billion per month in the first quarter to a monthly pace of JPY 285 billion in April-May.  Core domestic machinery orders plunged 14.8% in May, their greatest monthly decline since at least April 2005.  The economy watchers index, a gauge of sentiment among service sector workers, registered a much weaker 43.8 reading in June than had been forecast.  The 47.3 average score last quarter was no different from the first quarter mean and remained well below the neutral 50 level.  Money and credit growth remain anemic in Japan.  M2 money and bank lending posted respective on-year increases of 2.3% and 0.5% in the second quarter, which were weaker than the prior quarter’s results.  Japanese worker cash earnings were 0.8% lower in May than a year earlier, and purchasing manager survey readings were worse in June than in May.  The composite PMI fell a full point to 49.1 from 50.1 in May and 51.3 in April.  The manufacturing PMI slipped under 50 to a seven-month low of 49.9, and the services index scored a 49.3.  Finally, consumer confidence dipped by 0.3 points last month and registered a weak quarterly average score of 40.4 in the second quarter.  The European debt crisis and slowdown in China pose worrisome obstacles to an amply sustained recovery beyond 2012.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: ,


Comments are closed.