–Bank of Japan Branch Managers Expected to Continue Reporting Modest Recovery in Regional Economies, Firms Plan to Reflect Rising Costs in Sales Prices Further
By Max Sato
(MaceNews) – In the past few weeks, two things have become clearer on the Japanese economic policy front. Central bank policymakers have shifted their gears toward neutral with a hawkish eye on above-target inflation after multiple normalization rate hikes while government leaders have stressed that the economy does not need to be reflated any longer.
After the latest policy meeting on Sept. 17-18, Bank of Japan Governor Kazuo Ueda told a news conference that “the phase of our policymaking has shifted,” citing the risk of inflation deviating upward from the bank’s 2% price stability target. This means future rate hikes will be aimed at cooling off inflationary pressures as opposed to the gradual process of lifting the short-term interest rate from around zero that began in March 2024.
Finance Minister Satsuki Katayama on Tuesday told reporters that she and her U.S. counterpart Scott Bessent confirmed in a Sept. 25 telephone call that Japan’s stance is that “an undervalued yen is problematic in general.” Katayama said she told Bessent that “Prime Minister (Sanae) Takaichi is not a proponent of reflationary policy.” The notion that government officials want the BOJ to be cautious about raising rates has led to a weaker yen and higher long-term bond yields. Tokyo wishes to turn around the stubbornly weak value of the yen, which is keeping imports expensive, and Washington does not want to see any spillover effects of a jump in borrowing costs into the Treasury market.
Katayama also told the Nikkei business daily in an interview published on Friday that the government now has “one voice” on economic policy, seeking to reassure that cabinet ministers are united. She also said the prime minister “respects central bank independence.” Takaichi has been portrayed by news media, based on her past remarks, that she is not a big fan of interest rate hikes in general.
Under Takaichi, the government has appointed two economic professors who are known to have a reflationary bias to the nine-member BOJ board. Those two members voted against raising the policy rate last month.
Economic and Fiscal Policy Minister Minoru Kiuchi on Friday told a news conference that the Takaichi government’s plans to boost economic growth through “proactive but responsible” fiscal spending is different from the “narrowly defined” reflationary policy under the late Prime Minister Shinzo Abe, who called for aggressive monetary easing, increased fiscal spending and structural reform to help correct an excessively strong yen and turn the deflationary mindset around.
Kiuchi is trying to fine-tune his remarks after market participants interpreted what he said at the latest BOJ policy meeting as urging the bank to be cautious about raising rates further. Both the Ministry of Finance and the Cabinet Office send senior officials to the bank’s policy-setting meetings as observers.
The summary of opinions from the Sept. 17-18 meeting released on Thursday quoted a representative of the Cabinet Office as saying, “The government expects the bank to fulfill its accountability regarding the decisions at this MPM (monetary policy meeting) and to examine carefully the cumulative effects of past policy interest rate hikes. Looking ahead, it may be necessary for the bank to take into consideration its estimates of the neutral interest rate.”
In the coming week, the focus is on how BOJ branch managers will describe the economic and financial conditions in their regions. They are expected to repeat that regional economies are on a gradual recovery trend but that they also face the headwind from rising energy, transportation and labor costs, which has prompted many firms to continue raising sales prices.
This follows last week’s release of the BOJ quarterly Tankan business survey that showed sentiment among large manufacturers rose to a nearly nine-year high in the September quarter after posting an unexpected pickup in June thanks to strong global demand for memory chips and equipment to produce them used in artificial intelligence projects.
Among other data, household spending is expected to post a deeper drop in August as consumers remain cautious amid rising costs of living and stormy weather wreaked havoc in some regions that month.
BOJ board members will digest these and other data before discussing their policy stance at their next meeting on Oct. 29-30. Judging from Governo Ueda’s comments last month, the BOJ does not need to conduct a back-to-back interest rate hike.
Monday, Oct. 5
1400 JST (0500 GMT/0100 EDT Monday, Oct. 5) The Cabinet Office releases September consumer confidence survey conducted around the middle of the month.
The August survey released on Sept. 1 indicated that sentiment among households with two or more people continued to show signs of a pickup. The seasonally adjusted index edged up 0.6 point to a six-month high of 35.5 in August from 34.9 in July. Of the four subindexes comprising the main index, those on economic wellbeing and willingness to buy durable goods rose for the fourth straight month while those on incomes and employment declined.
Tuesday, Oct. 6
1535 JST (0435 GMT/0235 EDT Tuesday, Oct. 6) Bank of Japan Governor Kazuo Ueda delivers a brief speech at a meeting of the Japan Securities Dealers Association. The governor is expected to discuss the current economic and financial conditions as well as the bank’s decision to raise the target for the overnight interest rate to 1.25% from 1% in a 7 to 2 vote at its Sept. 17-18 meeting.
Wednesday, Oct. 7
0830 JST (2330 GMT/1930 EDT Tuesday, Oct. 6) The Ministry of Health, Labour and Welfare releases preliminary August wages.
In revised July data, total monthly average cash earnings per regular employee in Japan rose 4.3% on the year, accelerating further from 4.0% in June and 3.3% in May and hitting their highest pace of increase since 4.4% in December 2024. The key wage indicator has risen for more than five years, indicating that firms are raising wages to secure qualified workers amid widespread labor shortages.
Base wages rose a solid 3.8% in July after a 3.5% gain in June. The increase in one-time pay including bonuses accelerated to 5.3% from 4.7% and overtime pay was up 4.5% vs. 3.4% the prior month. Real average wages posted their seventh straight gain but the pace of increase is slower than in nominal terms at 2.0% following a 2.2% gain previously.
Wednesday, Oct. 7
1400 JST (0500 GMT/0100 EDT Wednesday, Oct. 7) The Bank of Japan releases the August consumption activity index.
The supply-side indicator, which has a close correlation with revised GDP data, edged up a real 0.2% on the month in July on a travel balance adjusted basis after falling 1.5% in June and rising 1.1% in May. The index dipped 0.4% on the on the April-June quarter, when it gained 1.0%.
Thursday, Oct. 8
– Bank of Japan branch managers gather at the Tokyo head office for a quarterly meeting to discuss regional economic conditions.
Thursday, Oct. 8
1400 JST (0500 GMT/0100 EDT Thursday, Oct. 8) The Bank of Japan releases the quarterly report on regional economies.
In the last regional economic report issued in July, all nine regions described their economies as either recovering moderately, picking up or picking up moderately while five regions continued to note that there were some soft spots.
Many branch managers reported that firms continued to reflect rising labor and logistics costs in their selling prices. They also said higher energy and raw material prices, driven by the Mideast conflict, are leading to price pass-throughs in business-to-business transactions in the materials sector at a faster pace than before. Many also reported that firms dealing in food and other necessities planned to raise prices in the summer (July-September) and beyond. Some reported that smaller firms were unable to fully pass higher costs onto consumers, which was squeezing their profit margins.
Thursday, Oct. 8
1400 JST (0500 GMT/0100 EDT Thursday, Oct. 8) The Cabinet Office releases the September Economy Watchers’ Survey conducted between Sept. 25 and Sept. 30.
The August survey released on Sept. 8 showed that the current sentiment index improved for the fourth straight month in August, backed by higher spending on leisure and growing job offers. It rose 0.7 point on the month to a six-month high of 46.4 but it was still below the neutral line of 50, hit by heat waves and rain storms in many regions and a powerful earthquake that caused casualties and damage in the southwest prefecture of Kumamoto.
The Watchers’ outlook index, which shows sentiment in two to three months, marked its fifth straight increase, up 2.5 points at a six-month high of 48.3 in August. The Silver Week holidays from Sept. 19 to Sept. 23 raised hopes for higher consumer spending among the operators of hotels, restaurants, theme parks and others in the tourism and leisure industries but rain storms battered some regions during the holidays.
The index started the year at 50.1 before slipping to 50.0 in February and plunging to 38.7 as the Iran war triggered a spike in energy prices.
Friday, Oct. 9
0830 JST (2330 GMT/1930 EDT Thursday, Oct. 8) The Ministry of Internal Affairs and Communications releases August household spending.
Mace News median forecasts: -4.2% y/y (range: -4.4% to -2.4%) vs. July -3.6%; -0.3% m/m (range: -0.4% to +1.4%) vs. July +0.5%
Japan’s real average household spending is expected to post its ninth straight year-on-year drop in August, down a sharp 4.2%, after falling 3.6% in July, as consumers remain cautious amid rising costs of living and stormy weather wreaked havoc in some regions. Cooler weather dampened sales of summer clothing, air conditioners and other seasonal goods.
More markups in groceries and other necessities are expected in coming months as the Iran war has boosted energy costs and the weak yen has pushed up import prices. Firms are also reflecting higher labor costs in retail prices. Consumers are also being hit by sharp price hikes for computers and smartphones amid global shortages of memory chips.
On the month, real average expenditures by households with two or more people are forecast to slip back 0.3% after rising 0.5% in July and plunging 6.4% in June. The seasonally adjusted expenditures index rose 3.5% in May to a 12-month high of 102.4.