Abenomics: Japan's economic revolution will rock our world. BOJ blows big bubble say experts.; Japanese people have a bubble every 50 years. Once Japan does have a bubble they do it really big.
Tweet Topic Started: 22 Jan 2013, 12:01 PM (13,753 Views)
Japan's central bank has left its vast monetary easing program unchanged and boosted its assessment of the economy, using the word "recover" for the first time in more than two years.
"Japan's economy is starting to recover modestly," the Bank of Japan said in a statement after a two-day policy meeting.
The comment was seen as a notch stronger than its previous statement that the "economy has been picking up".
The BoJ said the domestic economy has been improving, with brighter corporate and consumer spirits encouraging spending, thanks to the central bank's aggressive monetary easing steps.
"With regard to the outlook, Japan's economy is expected to recover moderately on the back of the resilience in domestic demand and the pick-up in overseas economies," the BoJ added.
Japanese Prime Minister Shinzo Abe’s victory in elections to the upper house of parliament yesterday opened a window for him to deliver on promises for structural reforms he says will revive the world’s third-largest economy.
Abe’s Liberal Democratic Party and its New Komeito ally will have at least a 133 majority in the 242-seat upper house, according to estimates by state broadcaster NHK. The former ruling Democratic Party of Japan slid further into the margins of politics after its collapse in lower house elections in December, leaving the LDP in its strongest position since 2007.
With the Diet avenues now cleared for the government’s bills, the fight for Abe, 58, turns inward -- to convince his enlarged party, and a public that turned out in fewer numbers yesterday, that his program of change is worth enacting. Vested interests are lined up against him on everything from making it easier to fire workers to entering a US-led free-trade zone.
‘‘The important thing for Abe is to quell opposition in his own party -- the opposition are no fear for him,’’ said Shuichi Obata, a senior economist in Tokyo at Nomura Securities, a unit of the nation’s largest brokerage. ‘‘Speed is extremely important for Abe, so that markets don’t feel he has let them down with the growth strategy. He has to satisfy them within a month,’’ using time before parliament resumes session to prepare his legislation, Obata said.
The yen was trading at 100.46 per dollar, up 0.2 per cent from before the election.
The Topix Index of stocks has climbed 59 per cent in the past eight months on optimism that Abe’s three-pronged economic strategy of monetary stimulus, a flexible fiscal stance and business deregulation will end two decades of malaise. The yen has tumbled about 19 per cent against the dollar in that time, offering exporters a more competitive exchange rate.
Abe has already seen how quickly investor sentiment can turn. When he delivered a speech previewing his structural reform agenda that omitted details and showed no legislation would be planned for months, the Topix tumbled 3.2 per cent.
Decisions loom on whether to cut the corporate tax burden; reduce labour regulations dating from the 1960s that offered lifetime employment at larger enterprises; make it easier to consolidate agricultural land; allow greater access to foreign goods and services through the Trans Pacific Partnership trade talks; streamline the approval of medical-industry products; restart nuclear reactors to cut energy costs; and address funding shortfalls in the social-security system.
Abe must also decide whether to proceed with a scheduled increase in sales taxes designed to pare the fiscal deficit in a nation with the world’s largest public debt burden. The prime minister yesterday said that question will be answered around the autumn, with economic data helping determine the call.
Turnout tumbled in the election, which coincided with the first weekend of school holidays. Kyodo News estimated the share of voters casting ballots at 52.26 per cent, down from 57.92 per cent in 2010, and reported that the final figure could be the lowest since 1998.
‘‘It’s not like there’s a groundswell of enthusiasm for him,’’ said Koichi Nakano, professor of politics at Sophia University in Tokyo, in reference to Abe. ‘‘If he misreads that and gets complacent, he could be punished very quickly in cabinet support levels.’’
Japan's consumer prices rose the most in four and a half years in June, a tentative sign that the economy is starting to shake off deflation.
Consumer prices excluding fresh food increased 0.4 per cent in June from a year earlier, the statistics bureau said in a statement today. The median estimate of 29 economists was for a 0.3 per cent gain, a Bloomberg News survey showed. Excluding energy as well, prices dropped 0.2 per cent, continuing more than four years of declines.
As Prime Minister Shinzo Abe's policies weaken the yen and energy costs rise, the increase in prices points to a gradual shift away from the deflation that has dragged on the economy for 15 years. After the Bank of Japan began rolling out unprecedented monetary easing in April, the next challenge for Abe is to loosen constraints on the labor market and companies to achieve sustained growth and 2 per cent inflation.
"The deflationary trend may be changing," Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, said before the report was released. "It's too early to say the end of deflation is in sight but we are seeing something we haven't seen for a while."
The weak yen and higher gasoline prices have boosted the cost of goods, said Ryutaro Kono, chief economist at BNP Paribas SA, before the data were released.
The yen has lost 21 per cent against the dollar in the past year, pushed down by the BOJ's unprecedented monetary easing. Gasoline prices rose to the highest since April 2012 this week, according to Japan's trade ministry, with West Texas Intermediate oil rising more than 14 per cent this year as of yesterday.
Japanese companies have started to pass those costs on to consumers. Meiji Holdings Co. announced this week it will raise milk prices by as much as 4 per cent from October, citing higher costs on rising commodity prices and the yen's fall. Other food companies such as mayonnaise maker Kewpie Corp. and Yamazaki Baking Co. announced price increases earlier this year.
Japan's corporate services price index rose 0.4 per cent in June from a year earlier, the most since the collapse of Lehman Brothers Holdings Inc. in September 2008, BOJ data showed yesterday. Hotel accommodation and engineering services were among the costs that increased.
Japan's economy grew an annualised 2.6 per cent in April-June, a third straight quarter of expansion but slower than expected, which may heighten calls to delay a planned sales tax hike to ensure the country makes a sustained escape from deflation.
The expansion was smaller than a downwardly revised 3.8 per cent increase in the first quarter, when the launch of Prime Minister Shinzo Abe's stimulus policies drove up share prices and led to exceptionally strong personal consumption.
The reading compared with a median market forecast for a 3.6 per cent increase. Capital expenditure unexpectedly fell, a sign companies are yet to boost spending despite the feel-good mood generated by Abe's reflationary policies.
The Topix index of Japanese stocks slid 0.8 per cent after the data was released.
On a quarter-to-quarter basis, the world's third-largest economy grew 0.6 per cent in April-June. External demand added 0.2 percentage point to growth, while domestic demand contributed 0.5 point, data released by the Cabinet Office showed on Monday.
Private consumption rose 0.8 per cent from the previous quarter, more than a median market forecast of a 0.5 per cent increase, on robust spending on food, travel and consumer electronics.
But capital expenditure slid 0.1 per cent, much weaker than a median market forecast for a 0.7 per cent increase and marking the sixth straight quarter of decline.
Abe was elected last December on a platform of aggressive fiscal and monetary stimulus to revive Japan's economy. An immediate impact of his policies was a sharp weakening of the yen and rally in share prices over the first half of 2013, but the long-term impact is uncertain.
Japanese big manufacturers' business confidence improved over the three months to December to its highest level in six years, a central bank survey showed, boding well for Prime Minister Shinzo Abe's stimulus policies aimed at ending 15 years of grinding deflation.
But the Bank of Japan's quarterly "tankan" survey showed companies were less optimistic about the outlook and cautious of boosting capital expenditure, highlighting their uncertainty on whether the economy will sustain its momentum.
The headline index for big manufacturers' sentiment improved 4 points from the previous quarter to plus 16, the tankan survey showed on Monday, slightly above a median market forecast of plus 15. It was the fourth straight quarter of improvement and the highest level since December 2007.
The positive reading, which means optimists outnumbered pessimists, underscored the BOJ's view that the economy is recovering moderately and will likely allow it to hold off on expanding stimulus in coming months, analysts say.
Service-sector mood also improved as consumers rushed to beat a sales tax hike next April with the big non-manufacturers' index up 6 points to plus 20, better than a median forecast of plus 16. That was the highest level since December 2007.
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