via notayesmanseconomics:
After looking at China a couple of days ago it is again time to look East to Nihon this time. We can start with the latest economic news.
TOKYO — Japan’s economy grew an annualized 1.0% in the April-to-June quarter from the previous three months, according to preliminary government figures released Friday, avoiding a second straight quarter of contraction. ( Nikkei Asia)
You could argue that there is an element of mirroring of the UK as that is being reported at 0.3% in our terms and is better than expected.
The latest real gross domestic product (GDP) result compares with a median forecast for a 0.37% rise among economists surveyed by the Japan Center for Economic Research (JCER), a Nikkei-affiliated think tank.
Indeed we had previously looked at fears that Japan was in a recession.
It bounded back from a 0.2% contraction in the January-March period in the January-March period, despite the uncertainty over the outcome of tariff negotiations between Japan and the U.S. that prevailed throughout the quarter.
Actually there was another mirroring of the UK as there was a gain from a past revision as the contraction reported by Nikkei Asia for the first quarter of the year was revised to a 0.1% rise. Plus annual growth is now a rather similar 1.2%. Actually there is another bit of mirroring in something that will be even more welcome in Japan than the increasingly fiscally troubled UK. That is that nominal GDP rose at an annualised 5.1%.Over the years the lack of rises in nominal GDP have been a feature of The Lost Decade period as it applied pressure on the fiscal numbers via (lack of) tax revenue, plus the reality that most debt is financed in nominal terms. Whereas now the Japanese state is winning from this as the present rise follows on from 5.4% in 2023 and 3% last year.
Care is needed here as whilst the Japanese state is winning Japanese workers and consumers are suffering from inflation.
Japanese Bond Yields
I thought I would pivot because from time to time I look at the gap between economic theory and reality. The theory above is that higher nominal GDP improves the fiscal position which is normally expressed as a soft default or inflating away the debt. Except we keep seeing this. From Global Markets Investor on July 15t.
Japan 40-Year Government Bond Yield rose overnight to near the highest since 2007 Debut.
Japan 30-Year Yield rose to the highest since the 1999 Debut.
Japan 20-Year Yield rose to the highest since 1999
Japan 10-Year Yield rose to the highest since 2008.
The overall drum beat is hammering away today with the ten-year yield at 1.57%.
Nikkei 225
Having just looked at an area where the trading position of The Tokyo Whale is at best awful we can pivot to one where its best sake can be brought out for a celebratory toast.
NIKKEI HITS RECORD HIGH AMID GLOBAL MARKET OPTIMISM Japan’s Nikkei 225 surges 1.3% to a record 43,191.33, fueled by tech gains and upbeat sentiment from extended US-China tariff truce and steady Fed rate outlook. ( The Tradesman )
To misquote Prince Let’s Party Like Its 1989. The position us on the Bank of Japan’s books at 37.2 trillion Yen which was the entry or buying price. A back of the envelope calculation suggests it is worth around double that now. However as I have pointed out many times over the years how do you take a profit on such a large position without putting the skids under the market itself?
In fact that point is made in some ways by what I posted on Twitter (X) on April 4th of this year.
Another rough day for equities in Japan as the Nikkei 225 index falls nearly 1000 points to 33,762.
What a rally we have seen since then! But also as Blood Sweat and Tears remind us.
What goes up must come downSpinning Wheel got to go ’roundTalkin’ ’bout your troublesIt’s a cryin’ sinRide a painted ponyLet the Spinning Wheel spin.
US Treasury Secretary
We have become rather used to US President Trump telling what to do on interest-rates accompanied usually by some name calling. Well it would seem that this theme is spreading not only across his administration but geographically
US Treasury secretary Scott Bessent has said that Japan’s central bank is falling “behind the curve” on inflation and will probably have to raise interest rates, in a rare swipe by a senior official at the monetary policy of another country. ( Financial Times)
There is an irony here in that he has a fair point as the present official rate of 0.5% compares with an inflation rate above 3%. But it is a direct contradiction of the words of the Governor of the Bank of Japan.
US Treasury secretary Scott Bessent has said that Japan’s central bank is falling “behind the curve” on inflation and will probably have to raise interest rates, in a rare swipe by a senior official at the monetary policy of another country.
To my mind the Financial Times then puts the wrong spin on things.
Bessent’s comments on Wednesday reflected concerns about rising US long-term bond yields, which he suggested were being affected by those in Germany and Japan. He also said that he had spoken to Ueda about the matter.
Actually US long-term bond yields have been lower since the latest jobs report. To my mind the underlying issue here is the weakness of the Japanese Yen which the US administration would like to see stronger so that the US Dollar is weaker. They do get there in the end.
The US has been consistently pushing for the BoJ to tighten policy. In a June report to Congress, the US Treasury said that the Japanese central bank should “proceed in response to domestic economic fundamentals including growth and inflation, supporting a normalization of the yen’s weakness against the dollar and a much-needed structural rebalancing of bilateral trade”.
Along the way the Financial Times has confirmed that I was right all along about real wage growth.
Angrick noted that Japanese wage growth has been between 2 and 3 per cent on a per capita basis, trailing the inflation rate, which he said has “averaged between 3 and 4 per cent” since the middle of 2022.
Comment
One way of looking at things is to misquote another song. With apologies to The Vapors.
I’m turning BritishI think I’m turning VritishI really think so.
This phase of economic policy is about a soft default via inflation. Except there is a Japanese spin as whilst there are some overseas investors the vast majority of thebond market is domestic so Japan is defaulting on its own population.
On this road we see that the balance sheet of the Bank of Japan has been depth charged by its role as The Tokyo Whale in the Japanese government bond market. I pointed out earlier how hard it would be to sell its equity position but the state of play here is worse as the position is not only much larger the market is already falling. Thus my view on interest-rates is the same as I pointed out on October 2nd 2023.
Imagine what they would be if Yield Curve Control stopped and interest-rates rose and you quickly come to the conclusion that fears over its balance sheet have been a factor on the Bank of Japan not raising interest-rates.
So only when they are forced to….
