Reporting from Workstation 9

Current status of the Japanese Economy
I am terribly sorry, but the net has been down the whole day, so I could not do any internet research. This tiny research report is largely from FT.

Labor Market

Ø The Unemployment rate at 3.8% is the lowest in 9 years.
Ø Tight labor market, but wages and prices have not responded.
Ø Household disposable income had dropped by 0.4% this year.
Ø Increasing number of part time workers are blamed on the downward pressure on wages.
Ø Hourly wages in Japan are amongst the lowest in the developed world.
Ø Most of the wealth of the recovering economy is going to the management and shareholders
Ø An increase in minimum wage is being asked for($0.41)
Ø BOJ governor believes productivity increase eventually will help all.
Ø Ratio of jobs to jobseekers rose up to 105 from 103 last quarter
Ø Participation rate of women is going up and putting a downward pressure on wages. Out of 660000 additions to jobseeker, 414000 were women last year


Monetary Policy:

Ø Governor, Bank of Japan is Toshihiko Fukui .
Ø Prices are still falling at an annual rate of 0.2% and hence Hiroko Ota (Japanese Economy Minister) is scared to declare an end to the deflation period.
Ø Yield on short dated Government bonds rose, since there is strong economic news. When there is strong news, expectations of an interest rate rise get formed, and this gets reflected in yields on Government bonds.
Ø Interest rate swaps (wiki it if you are not familiar) have been an indicator of rising bond yield. The swaps are fully pricing in a 25 basis points to 0.75 percent increase by October with a 70% chance of increasing by august. “Not everyone is on board with becoming bearish on the bond. The cynics say they have seen this happen last years, after which poor economic news caused the yields to tumble down.” - FT.
Ø As of yesterday, bond yields stand at 0.955 (on the 2 year JGB)
Ø As of yesterday, bond yields on 10 years JGB stand at 1.745.
Ø In the bond market: Bears expect prices to fall and yields to rise and Bulls expect prices to rise and yields to fall.
Ø Currency trading at 121.278 to the US dollar.

Economy

Ø Average annual growth rate for the last five years = 2%
Ø In the last year, raised interest rates twice, after a dry six year spell that is, economy is finally recovering.
Ø Plus points: Household spending was weak until this quarter when it started picking up. However there is still some uncertainty about future trends
Ø Minus Points: In april, the industrial production figures were weak
Ø Core private sectors machinery orders dropped unexpectedly, plunging 4.5 % since February.
Ø Of recent capital spending figures by companies are both strong and weak, causing uncertainty.
Ø Uncertainty about the independence of central bank from Politics

Finance

Private equity groups are venturing full on into areas, where the Japanese themselves fear to tread, especially Japanese consumer finance groups.

That ends a short report. If I have time in the night, I'll try to do a short report of the last decade in Japan. But highly unlikely.

Next in this Series: One of the Middle east countries.

Labels: Economy research