Download Monthly Economic Report: March 16, 2017(PDF/250KB)

Monthly Economic Report
March 16, 2017
Copyright Mizuho Research Institute Ltd. All Rights Reserved.
1.
The Japanese Economy: moderate economic recovery.
Clear corporate sector recovery in the Second Preliminary Quarterly Estimates of GDP
 Japan’s real GDP grew +0.3% q-o-q (+1.2% annualized) in the Oct-Dec quarter of 2016 (Second Preliminary Quarterly Estimates of GDP, the
“2nd QE”), upwardly revised from the First Preliminary Quarterly Estimates of GDP (1st QE) (+1.0% annualized).
 Despite the downward revisions for inventory investment and public investment, capital investment was revised upward. Capital investment
recorded the largest growth since the Jan-Mar quarter of 2014.
 Although there are lingering concerns about the strength of the recovery in personal consumption, the 2nd QE indicates that the economy is
following a gradual recovery most notably in exports and capital investment, against a backdrop of the improvement of the overseas
economies.
[ Real GDP growth for Oct-Dec quarter of 2016 (2nd QE) ]
2015
Oct-Dec
(Q-o-q % change)
1.5
Gross domestic product (GDP)
Private capital investment
(Q-o-q % change p.a.)
Rate of real GDP
growth
1.0
Households
(Consumption + Housing)
External
demand
0.5
(Y-o-y % change)
Domestic demand
Private demand
Personal consumption
0.0
Housing investment
Capital investment
Inventory investment
- 0.5
Private inventory investment
Public demand
- 1.0
Q1
Q2
Q3
2015
Q4
Q1
Q2
Q3
2016
Q4
Public demand
Government consumption
Public investment
Net exports of goods & services
Exports
Imports
Source: Made by Mizuho Research Institute (MHRI) based upon Cabinet Office,
National Accounts
Nominal GDP
GDP deflator (Y-o-y % change)
- 0.2
- 1.0
1.1
- 0.3
(-0.3)
- 0.5
(-0.3)
- 0.6
- 1.0
0.1
(0.0)
0.3
(0.1)
0.7
- 1.3
(0.0)
- 0.8
- 0.8
- 0.2
1.5
(Q-o-q % change)
2016
1st QE
Jan-Mar Apr-Jun Jul-Sep Oct-Dec Oct-Dec
0.5
1.9
0.4
0.1
(0.1)
- 0.1
(-0.1)
0.4
1.5
- 0.2
(-0.3)
0.9
(0.2)
1.3
- 1.2
(0.3)
0.9
- 1.1
0.7
0.9
0.5
2.2
0.9
0.6
(0.6)
1.0
(0.7)
0.2
3.3
1.4
(0.3)
- 0.7
(-0.2)
- 1.1
1.0
(-0.0)
- 1.2
- 1.0
0.4
0.4
0.3
1.2
1.1
- 0.1
(-0.1)
- 0.1
(-0.1)
0.3
2.4
- 0.1
(-0.3)
0.0
(0.0)
0.2
- 0.9
(0.4)
2.1
- 0.3
0.1
- 0.1
0.3
1.2
1.6
0.1
(0.1)
0.2
(0.1)
0.0
0.1
2.0
(-0.2)
- 0.3
(-0.1)
0.3
- 2.5
(0.2)
2.6
1.3
0.4
- 0.1
0.2
1.0
1.7
- 0.0
(-0.0)
0.0
(0.0)
- 0.0
0.2
0.9
(-0.1)
- 0.0
(-0.0)
0.4
- 1.8
(0.2)
2.6
1.3
0.3
- 0.1
Note: The figures in ( ) indicate the contribution to changes in GDP
Source: Made by MHRI based upon Cabinet Office, National Accounts
1
Exports and industrial production follow a recovery path despite a possible slowdown in the Jan-Mar quarter
 The export volume index (seasonally-adjusted by MHRI) stood at -0.4% m-o-m in January, declining for the second straight month.
 The pause in growth of US-bound automobile exports which had been strong in the Oct-Dec quarter, and the temporary impact of the Chinese
New Year served to push down exports.
 Looking forward, exports should gradually pick up.
 The industrial production index stood at -0.8% m-o-m in January, falling into negative territory for the first time in six months.
 However, the industrial production index rose +0.2% from the Oct-Dec quarter, leading to our view that industrial production is continuing to
pick up.
 Transport equipment, electronic parts & devices, general-purpose, production and business oriented machines contributed to the increase.
[ Industrial production index (y-o-y % change in level of contribution) ]
[ Export Volume Index by region ]
(Y-o-y % change)
(2010=100)
World
115
6.0
US
110
EU
105
Asia
Others
Transport equipment
Electronic parts & devices
General-purpose, production and business oriented machinery
Mining and manufacturing
4.0
2.0
100
95
0.0
90
- 2.0
85
- 4.0
80
75
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
(mmm-yy)
Note: Seasonally-adjusted by MHRI
Source: Made by MHRI based upon Ministry of Finance, Trade Statistics
- 6.0
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
(mmm-yy)
Source: Made by MHRI based upon Ministry of Economy, Trade and Industry, Indices of
Industrial Production
2
Recovery in corporate profits. Recent increase in personal consumption
 According to the Financial Statements Statistics of Corporations by Industry, ordinary profits rose +16.9% y-o-y in the Oct-Dec quarter,
revealing a substantial improvement.
 Petroleum & coal products and wholesale trade (including general trading companies) contributed to the increase due to factors such as
unrealized profits on inventories generated by the recovery in commodity prices. Electrical machinery, equipment, and supplies and chemicals
made a positive contribution due to factors such as the gradual recovery of the global economy and improvement of the global IT cycle.
 Real consumption expenditures (two-or-more person households, seasonally-adjusted) rose +0.5% m-o-m in January.
 Apart from a pause in the rise of fresh food prices, items such as furniture & household utensils, and clothing & footwear made a positive
contribution.
 The impact of the rise of prices of daily goods caused by the weak yen will require monitoring.
[ Ordinary profits (y-o-y % change in level of contribution) ]
(2015=100)
106
(Y-o-y % change)
Others
Wholesale trade
Electrical machinery, equipment and supplies
Petroleum and coal products
Chemicals
All industries
25
20
15
[ Real consumption expenditures and real retail sales ]
104
Real retail sales
102
10
100
5
98
0
96
-5
Real consumption expenditures
(Family Income and Expenditure Survey, two-or-more person households)
94
Oct-14
- 10
Apr-15
Oct-15
Apr-16
Oct-16
(mmm-yy)
- 15
2015
2016
Source: Made by MHRI based upon Ministry of Finance, Financial
Statements Statistics of Corporations by Industry
(yyyy)
Note: Seasonal-adjustment and inflation-adjustment of real retail sales by MHRI
Source: Made by MHRI based upon Ministry of Economy, Trade and Industry, Current Survey of
Commerce, and Ministry of Internal Affairs and Communications, Family Income &
Expenditure Survey and Consumer Price Index
3
Given a low rate of increase in nominal wages, real wage growth is trending around zero% y-o-y
 In January, nominal wages (total earnings) grew +0.5% y-o-y and scheduled cash earnings rose +0.8% y-o-y.
 Hourly wages of part-time workers rose to +2.5% y-o-y reflecting the tight demand-supply of labour. On the other hand, wages for full-time
employees remained lackluster.
 Growth in real wages has been virtually zero since October 2016 due to the recovery of prices.
 The rise of the consumer price index (general index excluding imputed rent) caused by the upturn of energy prices pushed down real wages.
 We forecast a moderate pace of increase in the consumer price index, which will curb real wage growth.
[ Real wages ]
[ Scheduled cash earnings by form of employment ]
(Y-o-y % change)
(Y-o-y % change)
3.0
3.0
Nominal wages
Full-time employees
Part-time employees (paid hourly)
2.0
2.5
Price factors
Real wages
1.0
2.0
0.0
1.5
- 1.0
1.0
- 2.0
0.5
- 3.0
0.0
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
(mmm-yy)
Note:
When calculating each amount of earnings, the 2015 base index has been used so the
figures may differ from publicly released data
Source: Made by MHRI based upon Ministry of Health, Labour and Welfare, Monthly Labour
Statistics
- 4.0
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
(mmm-yy)
Source: Made by MHRI based upon Ministry of Health, Labour and Welfare, Monthly Labour
Statistics
4
Core CPI in positive territory for the first time in 13 months
 In January, nationwide core CPI (General Index excluding fresh food) rose +0.1% y-o-y, marking the first rise in 13 months.
 Apart from the ongoing contraction in the negative level for energy prices, the CPI was pushed up by clothing & footwear and reading &
recreation.
 The underlying trend excluding energy prices is virtually zero% y-o-y, indicating that the CPI is bottoming out.
 The CPI (General Index excluding fresh food & energy), released for the first time from March, stood at +0.2% y-o-y (+0.1% y-o-y in
December).
 We expect further increases in the positive core CPI due to the moderate recovery in energy prices and the weak yen.
 We forecast the boost from the rise of energy prices to continue for the rest of the year.
[ Core CPI (y-o-y change) and monthly forecast ]
[ Consumer Price Index ]
Forecast
(Y-o-y % change)
(Y-o-y % change)
2.0
Feb 2018
+1.4%
1.4
Jan 2017
+0.1%
1.5
1.2
1.0
General ex.
Fresh Food
and Energy
0.8
0.6
1.0
0.5
General ex. Food
(ex. alcohol) and
Energy
0.4
0.2
0.0
0.0
- 0.5
- 0.2
US style core CPI
General ex. Fresh Food
- 0.4
- 1.0
Energy
Food (ex. Fresh food and alcohol)
General ex. Fresh Food
- 0.6
Apr-15
Oct-15
Apr-16
Oct-16 (mmm-yy)
Note: Excludes the impact of consumption tax hikes
Source: Made by MHRI based upon Ministry of Internal Affairs and Communications,
Consumer Price Index
- 1.5
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
(mmm-yy)
Note: Excludes the impact of consumption tax hikes
Source: Made by MHRI based upon Ministry of Internal Affairs and Communications,
Consumer Price Index
5
2. Japanese Monetary Policy: BOJ announces outright JGB purchase schedule. Reduced purchases in short-term zone
 The Bank of Japan (BOJ) left monetary policy unchanged at its March Monetary Policy Meeting (MPM) (March 15 and 16). The BOJ
announced its March schedule for outright purchases of JGBs. The aim is to reduce the uncertainty about outright purchase operations.
 The size of outright purchases was reduced slightly for the short-term zone and for super long-term maturities longer than 25 years. The target
interest rate for 10Y JGBs was maintained, and we forecast a gradual reduction in the total size of outright purchases.
 We expect current policy to be maintained while the BOJ will pay close attention to the US administration’s policy management and the political
developments in Europe. Monetary policy is to be a point for discussion in the Japan-US economic dialogue scheduled to commence from April.
We will closely monitor the course of discussion.
[ BOJ JGB outright purchase plans ]
[ Overview of the Japan-US Heads of State Meeting (economic issues) ]
(100 million yen)
Residual maturity
Up to 1 year
More than 1 year and up
to 5 years
March
February
750
750
More than 1 year and up
to 3 years
3,500
4,000
More than 3 years and
up to 5 years
4,000
4,200
4,500
4,100
More than 10 years and
up to 25 years
2,000
1,900
More than 25 years
1,000
1,100
More than 5 years and up to 10 years
More than 10 years
Note:
The outright purchase amount is the median of the offer amount range for a
single auction
Source: Made by MHRI based upon Bank of Japan materials
Reaffirmed their commitments to using the three-pronged approach of
mutually-reinforcing fiscal, monetary, and structural policies to strengthen
domestic and global economic demand.
Emphasized that they remain fully committed to strengthening the
economic relationships between their two countries and across the region,
based on rules for free and fair trade. This will include setting high trade
and investment standards, reducing market barriers, and enhancing
opportunities for economic and job growth in the Asia-Pacific.
Noting that the United States has withdrawn from the Trans-Pacific
Partnership, the leaders pledged to explore how best to accomplish their
shared objectives. This will include discussions between the United States
and Japan on a bilateral framework as well as Japan continuing to advance
regional progress on the basis of existing initiatives.
Three areas will be tackled with the establishment of a new framework for
economic dialogue headed by Deputy Prime Minister Aso and Vice
President Pence: (1) macroeconomic policies such as fiscal and monetary
policies (2) cooperation in areas such as infrastructure, energy, cyber and
space issues, and (3) a framework for bilateral trade.
Source: Made by MHRI based upon the Ministry of Foreign Affairs Japan-US Joint Statement,
(February 10, 2017) and media reports
6
3. Japanese Long-term Yields: the rise in super long-term bond yields has recently paused
 10Y JGB yields have been flat following the release of the BOJ’s schedule for outright purchases.
 The rise in super long-term bond yields has recently paused. On the other hand, yields in the short-term zone have fallen on the back of
demand from foreign investors.
 The cost for dollar funding has been rising due to the wider differential in Japan-US market rates. Investors in medium- to long-term foreign
bonds have been net sellers.
 We forecast JGB yields to remain low while we also monitor the trends in the BOJ’s outright purchase operations. We anticipate super long-term
yields to remain susceptible to upward pressures. The trends of major investors up until January show that life insurance companies were limited
in their net purchases of JGBs.
 The (median) forecast for 10Y JGB yields at the end of FY2017 is 0.15%, according to the bond market survey (February survey). The view
is that the interest rate target will be raised in the second half of the year.
[ JGB yields ]
[ Dollar funding cost ]
Fixed-rate
BOJ Policy
Board Meeting Operation
(Nov 17)
(Sep 21)
(%)
Fixed-rate
Operation
(Feb 3)
2.0
40Y
(%)
1.9
1.7
1.5
1.5
20Y
1.0
1.3
Other
10Y
1.1
0.5
5Y
0.0
0.9
2Y
0.7
Japan-US Market Interest Rate Differential
- 0.5
Sep
Oct
2015
Nov
Dec
Jan
Feb Mar
Apr
May
Jun
2016
Source: Made by MHRI based upon Bloomberg
Jul
Aug
Sep
Oct
Nov
Dec
Jan
2017
Feb Mar
0.5
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17 Mar-17
(mmm-yy)
Source: Made by MHRI based upon Bloomberg
7
4. Foreign Exchange: the upside for the dollar to remain limited against the yen
 Despite the implementation of a rate hike at the March FOMC meeting, the pace of future interest rate hikes was not revised upward, leading to a
pause in the upward pressure on the dollar.
 The President’s budget message (March 16) lacked detail in relation to areas such as tax cut policies and had limited impact on the foreign
exchange markets.
 While the Trump administration’s fiscal and trade policies are factors contributing to a strong dollar, its currency policy is curbing the dollar’s
upside.
 Expansionary fiscal policy and the corporate tax cut with border adjustment contribute to a stronger dollar, but the dollar is likely to fluctuate
on the back of speculation until there is confirmation that such policies will actually be implemented.
 We also anticipate a period of stronger yen due to a temporary risk-off trend ahead of events such as European elections.
 US currency policy favors a weak domestic currency. The constraints inferred through statements such as the forthcoming semi-annual Report
on Foreign Exchange Policies of Trading Partners of The United States (“semi-annual report on foreign exchange”) will add to pressure for a
strong yen and weak dollar.
[ US-Japan real long-term interest rate differential and JPY/USD ]
(JPY/USD)
125
[ Impact of Trump’s policies on the JPY/USD exchange rate ]
(%pt)
Fiscal policy
Currency policy
Trade policy
Expansive fiscal
policy
Weak domestic
currency
(Constrain weakness
in other currencies)
Protectionist
President Trump's
policy direction
Corporate border
adjustment tax
Bilateral agreements
Impact on foreign
exchange rates
when policies
implemented
Strong
dollar
Weak
dollar
Strong
dollar
Strong dollar
when there
is risk-off
2.8
JPY/USD
120
US-Japan 10Y interest rate differential (rhs)
2.6
2.4
115
2.2
110
2.0
105
1.8
100
95
Apr-16
1.6
Jun-16
Aug-16
Oct-16
Source: Made by MHRI based upon Bloomberg
Dec-16
Main events that President's Budget
US ｓemi-annual
President's Budget
will be used to Message (Detailed)
report on foreign
Message (Detailed) Trade negotiations (at
Congress
exchange (Scheduled
determine
Congress
any time)
deliberations
for April 15)
deliberations
implementation
1.4
Feb-17 (mmm-yy)
Source: Made by MHRI
8
5. Japanese Stock Market: chasing highs seems unlikely in the short term, but the market has scope to rise
 Japanese stocks are up an down, while close attention is being paid to foreign exchange movements.
 Investors are taking a wait-and-see stance ahead of major overseas events, but there is limited downside risk as the BOJ is purchasing ETF
when the market is down.
 Chasing highs seems unlikely in the near term given the ongoing uncertainty about political circumstances in Europe, and the prospects for US
tax reforms, trade and currency policies.
 However, despite growing expectations for next fiscal year’s earnings, the forecast PER remains in the 14 levels and there is scope for the
market to rise.
[ Trading trends in Japanese stocks by investor type (Weekly) ]
(100 billion yen)
10
8
[ Nikkei Average estimated from forecast EPS and the actual ]
(points)
Corporations
Investment trusts
Individuals
Trust banks (pension funds etc.)
Foreign investors
Nikkei average (end of wk, rhs)
20,000
(Points)
24,000
23,000
19,000
6
22,000
21,000
18,000
4
20,000
19,000
2
17,000
0
18,000
17,000
16,000
-2
-4
15,000
-6
16,000
Estimated stock price (PER 14x)
15,000
Estimated stock price (PER 15x)
14,000
Estimated stock price (PER 16x)
Actual (intra month average)
13,000
Jan-15
-8
16/May16/Jun
14,000
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
(mmm-yy)
16/Jul 16/Aug 16/Sep16/Oct16/Nov 16/Dec17/Jan17/Feb17/Mar
Note: Aggregate of 1st and 2nd Sections
Source: Made by MHRI based upon Bloomberg and the Tokyo Stock Exchange
Note:
Estimated using the forecast EPS for TOPIX at the end of February and
NT ratio of 12.4
Source: Made by MHRI based upon IBES
9
Mizuho Research Institute Ltd.
This publication is compiled solely for the purpose of providing readers with information and is in no way
meant to solicit transactions. Although this publication is compiled on the basis of sources which we
believe to be reliable and correct, Mizuho Research Institute does not warrant its accuracy and certainty.
Readers are requested to exercise their own judgment in the use of this publication. Please also note that
the contents of this publication may be subject to change without prior notice.
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