Asia-Pacific: The Week Ahead (Mar 18-22), Japan: Land Of The 'Lost Decade'

By Steven Levine

Investors surveilling Japan’s economic landscape are set to receive updates on the country’s inflation rate and manufacturing sector, amid fears of further slowing and deterioration.

Japan has been grappling with stubbornly low levels of inflation for almost three decades after the collapse of its economy in the early 1990s, while its central bank’s ongoing stimulus measures have been yielding little impact on prices.

At the release of its January monetary policy report, the Bank of Japan elected to maintain its negative interest rate of -0.1%, as well as its purchases of Japanese government bonds (JGBs), exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs).

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The bank said it will also continue with its ‘Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control,’ which it expects to continue “as long as it is necessary” for reaching and maintaining its 2% inflation target.

QQE was initially rolled-out in April 2013.

Furthermore, the BoJ is committed to expanding the monetary base until the year-on-year rate of increase in the consumer price index (CPI, ex-food costs) exceeds 2%. However, to date, this target seems far afield, as the bank’s ongoing efforts to strengthen its policy framework has had little effect on the inflation rate.

The nation’s CPI rose 0.2% year-on-year in January 2019 and was up 0.3% from the previous month.

The World’s Highest Debt-to-GDP

Fitch Ratings analysts Stephen Schwartz and Thomas Rookmaaker recently noted that Japan's gross general government debt (GGGD) of around 230% of GDP is the highest among the sovereigns the ratings agency covers. 

However, Fitch said the country appears to have been making some progress on this front, given faster nominal GDP growth, which has been helping to keep its public debt in check. Japan’s economy, the ratings agency continued, has been expanding since the end of 2012, making it one of the longest such periods on record.

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The author does not hold any positions in the financial instruments referenced in the materials provided.

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