Bank of Japan Monthly Report
The Bank of Japan (BoJ) has this morning published an update to the outlook for the Japanese economy in the form of their Monthly Economic Survey. The Bank left interest rates unchanged at it’s regular meeting last Friday, at 0% there was little scope for the Bank’s Governors to take any conventional steps to ease economic conditions in the world’s third largest economy.
The main tenet of the Report is that the economy is behaving as expected following the introduction of the controversial sales tax increase by the Government at the beginning of April. The BoJ pointed to the slow down in several areas of the economy in the previous two month’s but noted that this is a natural reaction to the new tax rate which was well flagged in advance, and as such this provided much opportunity for consumers to front load larger ticket purchases in advance of the tax taking effect.
The BoJ has also pointed to a pick up in international trade balances over the past couple of months. There are two factors in effect here, firstly imports are now levelling off due to the sales tax having a dampening effect on the demand for not only domestically produced goods but also on internationally imported goods. Secondly, the Bank is citing a pick up in the global economy as the primary reason for exports pushing ahead. It has however been noted that there still exist some considerable risks in this area, namely uncertainty around the strength of recovery in emerging and commodity lead markets along with some question marks that the Bank of Japan is attributing to longer term growth stability in both the US and Europe.
Following the introduction of the recent sales tax the BoJ is preparing for another confrontation with Prime Minister Abe’s government, this time in the form of a proposed reduction in the corporation tax rate.
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