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Business Recorder
21 hours ago
- Business
- Business Recorder
Japan's Nikkei to ease off record peak as trade honeymoon fades
TOKYO: Japan's Nikkei share average will likely ease off recent record highs toward year-end, according to strategists in a Reuters poll, though much depends on a fragile trade agreement with the United States. Japan's benchmark stocks index last week surpassed its previous intraday record, and traded as high as 43,876.42 this week. The index is up more than 9% so far this year, but is forecast to slip back to 42,000 at the end of December, according to the median estimate of 18 analysts polled August 8-18. The Nikkei joined global equity bourses in a steep dive in April after U.S. President Donald Trump announced sweeping tariffs on imports. As Trump backed down on deadlines and his administration worked out bilateral trade deals, many benchmarks recovered. Japanese equities jumped around 11% after the U.S. agreed last month to reduce tariffs on Japanese auto imports to 15% from 27.5%, though a timeframe for the change and other details remain nebulous. 'The 15% tariff is relatively low compared to the one on China, so Japanese companies may be able to gain a competitive advantage,' said Masayuki Kubota, chief strategist at Rakuten Securities. 'However, there is growing uncertainty about whether President Trump will actually uphold this agreement.' domestic product, the fourth biggest globally, grew much faster than expected in the second quarter. Governance push A major theme behind the Nikkei's gains in recent years has been the Tokyo Stock Exchange's push to boost corporate governance. Under pressure to improve returns and corporate value, companies have bought back shares in droves, and go-private deals have proliferated. The Nikkei early last year finally broke through the key high of 38,957.44 that had stood since 1989 during Japan's heady bubble economy. The gauge of blue-chip shares went on to set an intraday high of 42,426.77 on July 11, 2024, before the momentum petered out. With the tariff turmoil diminishing and the domestic economy resilient, nine of 12 analysts in the Reuters poll expect Japanese corporate earnings to be higher in the second half of 2025 than the first. 'If the U.S. economy is solid, it becomes easier for Japanese firms to raise prices for their exported goods to cover the cost of the tariffs,' said Yugo Tsuboi, chief strategist at Daiwa Securities. 'That will underpin corporate earnings.' Median forecasts predict the Nikkei will trade at 43,000 by mid-2026 and 45,500 by end 2026. Improving domestic wages, along with looser monetary policy by the U.S. Federal Reserve, will continue to make Japan a destination for foreign investors, said Oanda senior market analyst Kelvin Wong. 'An increase in global liquidity due to a weaker U.S. dollar and an impending dovish Fed pivot is likely to trigger a positive feedback loop back into the Japanese stock market,' said Wong. BOJ and politics Within the country, the major events investors are looking out for are a long-delayed rate hike by the Bank of Japan and the potential for political upheaval. Prime Minister Shigeru Ishiba is under pressure to step aside after an electoral drubbing last month. Expectations that his replacement will be more fiscally expansive have added to tailwinds for stocks, said IG analyst Tony Sycamore. 'We do see the market continue to run higher into year-end, and then after that I'd expect to see a pullback as we get close to the BOJ rate-hiking cycle taking effect,' he added.
Zawya
27-06-2025
- Business
- Zawya
In dovish tilt, BOJ zooms in on obscure underlying inflation trends
TOKYO - The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." GUIDANCE MISMATCH On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Reuters
27-06-2025
- Business
- Reuters
In dovish tilt, BOJ zooms in on obscure underlying inflation trends
TOKYO, June 27 (Reuters) - The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Yahoo
27-06-2025
- Business
- Yahoo
Analysis-In dovish tilt, BOJ zooms in on obscure underlying inflation trends
By Leika Kihara TOKYO (Reuters) -The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." GUIDANCE MISMATCH On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
Yahoo
27-06-2025
- Business
- Yahoo
Analysis-In dovish tilt, BOJ zooms in on obscure underlying inflation trends
By Leika Kihara TOKYO (Reuters) -The Bank of Japan's increasing caution around raising interest rates further relies heavily on a relatively obscure inflation reading, which policy doves argue suggests weak consumer demand but critics say messes with the bank's messaging. Underlying inflation in Japan, which focuses on the strength of domestic demand and wages rather than volatile food and fuel, has been tracking below the Bank of Japan's 2% target. That contrasts starkly with headline inflation numbers that are above the target at multi-year highs, riling the public and until recently providing strong arguments for further interest rates. Analysts say the BOJ's fresh concerns about local consumption and the global economy have muddled its efforts to manage inflation expectations in a country that spent decades mired in deflation. "The unprecedented nature of what the BOJ is doing, and a lack of track record anchoring inflation expectations, are reasons why the BOJ is using the fuzzy concept of underlying inflation," said former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute. "That's complicating its communication and making it difficult to understand what exactly they are trying to do." From a policy perspective, BOJ Governor Kazuo Ueda has already acknowledged the challenges of both resetting inflation expectations and trying to precisely measure underlying inflation. "We have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%," he said in a speech last month. "This is why we are still maintaining an accommodative policy stance." GUIDANCE MISMATCH On the face of it, Japan has an inflation problem, which is why its central bank is one of the few in the world that has raised rates in recent years as others cut. Headline consumer inflation hit 3.6% in April, well above 2.3% in the U.S. and the second highest among G7 advanced nations following 4.1% in the UK, according to OECD data. Other consumer price measurements, such as the core index stripping away volatile fresh food and the "core-core" - which also excludes fuel costs - have also stayed above the BOJ's 2% target for about three years. While there is no single indicator that gauges "underlying inflation", the BOJ looks at its own recalibrated measures such as the weighted median and the "mode", both of which are currently below the bank's 2% target. Other proxies the BOJ says it monitors include medium- and long-term inflation expectations, which it estimates as moving above 1.5% but slightly below 2.0%. A chart attached to recent BOJ speech texts also includes services price inflation as a key measurement of underlying inflation which, at 1.4% in May, also remains below 2%. Those trends coupled with worries about the economic hit from higher U.S. tariffs partly explain why the BOJ has signaled a pause in interest rate hikes after lifting them to 0.5% in January. However, there is still ambiguity around just what exactly vexes the BOJ. "For the average household, what matters is the price of food and grocery, not fuzzy concepts like underlying inflation," said a source familiar with the BOJ's thinking. "Even when looking at various indicators, underlying inflation is already pretty close to 2%," the source said, a view echoed by another source. To be sure, the BOJ expects the gap between headline and underlying inflation to narrow if the rise in food prices moderates and prospects of steady wage hikes underpin consumption. The central bank has also said it will keep raising rates if there is enough conviction that underlying inflation will hit 2% - a call the board makes looking not just at price moves but the economic outlook and its risks. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. A key challenge for now remains in how it communicates its cautious position, especially if domestic food inflation and the Middle East conflict persist and lead to an upgrade in its price forecasts at the board's next review on July 30-31. That question is also creating divisions within the BOJ board. Critics warn such dovish guidance could leave the bank behind the curve in addressing inflation risks. "I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," Naoki Tamura, a BOJ board member known for his advocacy of further rate hikes, said this week. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability."
