OPEC Monthly Oil Market Report – August 2017
was lower again in June, increasing by only 0.3% y-o-y, compared to 0.4% y-o-y in May. Despite
tight labour markets, wages have only risen slowly in the past months and even fell by 0.5% y-o-y in June,
the latest available month. This certainly is also a concern and is keeping inflation from moving higher in
Japan. Core inflation (which excludes food and energy) even fell by 0.2% y-o-y in June for a second
consecutive month, but this was better than the minus 0.3% seen in April. Therefore, core inflation now
remains negative for the fifth month in a row, so low inflationary or even deflationary trends remain
fell again in June to the extremely low level of 2.8%, compared to 3.1%
in May. Given this muted price environment, the BoJ revised its inflation target lower and now expects to
reach 2% inflation only at around 2019. This will be at a time when the sales tax is supposed to be lifted from
8% to 10%, which will naturally cause inflation to rise. The tax hike was postponed in the past years, so it
may not materialise again. The low inflation environment will also lead the BoJ to continue its monetary
policy and it is therefore expected to keep its overnight interest rates to a cap of minus 0.1% and 10-year
bond yields at about 0%.
in June rose by 9.7% y-o-y, after an increase of 14.9% y-o-y in May, after already having
shown strong growth in the previous months of the year. The rise in exports was again very much supported
by exports of industrial goods and capital equipment, which mostly backed this positive trend in trade.
continued its recovery, rising for the eleventh consecutive month, up by
4.9% y-o-y in June, after a rise of 4.7% y-o-y in May. This was supported again by a strong trend in
manufacturing, which climbed by 5.1% y-o-y in June, compared to 4.7% y-o-y in May. A continuation of the
positive trend is expected, when considering manufacturing orders, which rose by by 8.3% y-o-y in May, after
a rise of 2.0% y-o-y in April.
Some improvement was also reflected in
. Retail trade rose by 2.1% y-o-y in June, the
same level as in May. While the near-term development is uncertain, given the development in wages, it
constitutes a solid and rebounding trend from low growth in 2016.
Graph 3 - 2: Japanese retail trade
Graph 3 - 3: Japanese PMIs
numbers provided by IHS Markit confirmed a healthy trend, albeit a slightly declining
manufacturing index. It fell to 52.1 in July, after 52.4 in June and 53.1 in May. The services sector PMI also
slowed down a little bit, moving down to 52.0 from 53.3 in June.
The most recent developments confirm a solid underlying growth dynamic in the Japanese economy. This
has already been reflected in the 2017 GDP growth forecast of 1.4%. However, numerous issues persist,
and given the tight labour market situation and high capacity utilisation rates, further advancements in growth
seem challenging. Moreover the income situation in combination with consumption and inflation will need to
be closely watched in the coming months. The 2018 growth forecast remains unchanged at 1.1%.
Sources: Ministry of Economy, Trade and Industry and
% change y-o-y
Sources: IHS Markit, Nikkei and Haver Analytics.