Japan strongly denies China’s claims that its stance on the Taiwan crisis has changed, and Japan also calls for more discussion to prevent relations between Asia’s two largest economies from escalating further.
China’s warnings and other actions and comments have already affected tourism and import restrictions, adding pressure to an already delicate situation.
The economic stakes are high; China remains Japan’s most important trading partner and also a key supplier of raw materials. Therefore, Japan is trying to reduce its dependence, but increasing tensions could still shake the entire Asian economic outlook.
The story should probably be behind a paywall if one has read a certain number of news articles for free.
According to the article below, Japan’s wage negotiations for next year seem to be going favorably from the unions’ perspective; labor unions are again demanding significant increases, and the tight labor market is pressuring companies to concede.
The article also states that continuous wage increases strengthen expectations that the Bank of Japan will raise interest rates soon. Nevertheless, US tariffs and a weak economic outlook are simultaneously casting shadows on companies’ decisions.
Labour unions demand bumper pay hikes despite US tariffs
Tight labour market pressures firms to maintain big pay hikes
BOJ awaits early signs of wage talks for rate hike decision
The head of Rengo, Japan’s largest trade union, Tomoko Yoshino, is pressuring the government to curb rising prices so that wage increases do not go to waste. According to her, inflation should be clearly brought under control to provide employees with more much-needed purchasing power.
According to the story, Yoshino continues to push for fair wage increases, especially for small businesses. She reminds that tariffs and the weak yen also increase uncertainty, which is why she emphasizes the need to get wages and prices on a stable path.
“In her negotiations this year Yoshino will have to navigate the implications of trade policy developments and their impacts on larger manufacturers. After many rounds of trade talks, Washington agreed in July to fix tariffs on imports from Japan at 15%. While the rate is lower than the 25% originally threatened, it remains well above levels before Donald Trump began his second term as president.”
The Bank of Japan hints at a possible interest rate hike as early as December this year, as the weak yen increases inflationary pressures and political opposition begins to ease. A growing number of officials have become more hawkish, and markets are being “prepared” to avoid a surprise. The timing of the rate hike also largely depends on the stance of the US Federal Reserve.
At the same time, the BOJ has been considering whether a weak yen could keep inflation high for longer than previously expected. The outlook for wage increases and reduced fears about the US economy support its normalization, although political and international pressures still naturally influence the decision.
Japan plans to finance Takaichi’s economic package with over 11.5 trillion yen in additional debt, a significantly larger sum than Ishiba’s government program needed.
Strong tax revenue reduces the need for debt, but does not eliminate it.
Bank of America estimates that Japan’s economy will continue moderate growth next year, as domestic demand and corporate investments compensate for weak exports.
BofA raised its growth forecasts and believes that inflation will calm down, wages will support consumption, and labor shortages will accelerate investments.
The biggest uncertainty relates to the Takaichi government’s fiscal policy.
The FT article below states that Japan has long carried a huge debt burden, but low interest rates have created a dangerous illusion that debt is not a problem. The BoJ has kept interest rates artificially low, but the post-COVID interest rate hike collapsed the yen and made it clear that interest rate caps can no longer be defended without the risk of a currency crisis.
Now, according to the article, interest rates must be allowed to rise, but they are artificially low. Japan practically no longer has a proper fiscal buffer.
The article reveals that if the new Prime Minister Takaichi truly wants to stand out, she should dare to tighten the economy, for example, through tax increases, spending cuts, or even by putting state assets up for sale. The markets would reportedly reward even a small change in direction.
Japanin valtiovarainministeri varoitti, että jenin nopeat ja epävakaat liikkeet eivät perustu varsinaisesti talouden perusteisiin. Hän korosti myös, että tarvittaessa valuuttainterventiot ovat mahdollisia. Jutussa todetaan, että markkinat odottavat nyt keskuspankin viestiä mahdollisista koronnostoista jenin tukemiseksi.
Markets last week had been looking out for intervention by Tokyo to shore up the declining yen, but the currency stabilised. On Monday, all eyes will be on a speech by Bank of Japan Governor Kazuo Ueda to see whether he signals a likely rate increase at the BOJ’s December meeting, which would help lift the currency.
Japan’s government bond market is starting to show serious signs of trouble. The volume of ten-year futures has risen sharply, prices have fallen to 2008 levels, and interest rates have increased significantly.
Investors seem to be rapidly increasing their short positions, which further adds to market nervousness.
This will be a tough spot for the prime minister who specifically champions “good old values.” Any move that threatens the 40+ age group is very difficult to make. On the other hand, if young people are punished, all birth rate support measures will go down the drain. But if one has to choose between these two, young people will probably pay the price, which is likely to reduce the cohesion Japan relies on.
Japan’s service sector continued strong growth in November, as the country’s PMI rose to 53.2 and employment grew at its fastest pace in ten months.
Rising costs pushed prices up, and services compensated for industrial weakness, with the composite PMI (services+manufacturing) rising to 52.0. The article states that a new stimulus package could boost demand.
The article below explains how the Bank of Japan is in a challenging situation; interest rate hikes would tighten the economy and could further raise yields on long-term government bonds, but then again, keeping interest rates low could accelerate already high inflation.
Japan’s debt is swelling, and the situation also has effects on international markets, etc.
Key Points
On Thursday, yield on the benchmark 10-year JGBs hit a high of 1.917%, surging to their strongest level since 2007.
If the BOJ sticks with its policy of raising rates, it risks sending yields higher.
If it cuts or keeps rates steady to support growth, inflation could accelerate further.
Japanese Minister Minoru Kiuchi hopes for close communication from the central bank with the government, but did not oppose a possible December interest rate hike. Markets interpreted the minister’s statements as a sign that the government would not prevent an interest rate hike from 0.5 to 0.75 percent.
Japanese regional banks’ unrealized losses on domestic bonds rose by the end of September to a record over $21.3 billion, more than tripling since spring.
Losses have been accumulating for the fifth consecutive year, as the decline in value of Japanese government bonds is historically steep.
Japanin pääministeri Sanae Takaichi ajaa jättimäistä elvytyspakettia velkarahalla juuri nyt, kun korkotasot ja jenin heikkous hermostuttavat sijoittajia.
Valtion velka on jo erityisesti opposition mielestä valmiiksi valtava ja markkinoilla pohditaankin, kuka ostaa kaikki uudet joukkovelkakirjat. Moni pelkääkin, että jos kasvu jää haaveeksi niin käteen jää vain kasa entistä kalliimpaa velkaa Japanille itselleen.
Extra bond sales will also test an already fragile market, where demand - especially for long-dated paper - has traditionally been uneven from foreign investors and has been drying up for years from domestic banks and insurers.
After accounting for redemptions and decreased purchases by the Bank of Japan, net supply in the market will jump by nearly 11 trillion yen in 2026 from 58 trillion in 2025, according to Bank of America estimates.
“The problem is … who’s going to buy these bonds?” said Sally Greig, head of global bonds at Scottish long-only manager Baillie Gifford. “We’ve still got more supply to absorb and Japan’s not the only one spending money.”
The Japanese yen has temporarily “calmed down” as BOJ Governor Kazuo Ueda hinted at new interest rate hikes, and markets are already pricing in about an 80 percent probability of rate hikes for December.
Analysts, however, still expect the yen’s weakness to continue into next year, while new Prime Minister Sanae Takaichi’s $137 billion stimulus package further adds to inflation and debt concerns.
Japan’s economy contracted more than expected in the third quarter, with GDP falling by 0.6 percent and an annualized rate of -2.3 percent.
Exports and domestic demand weakened, and investments also turned downwards. This weak performance could delay potential interest rate hikes by the Bank of Japan and increase pressure on fiscal policy, according to the article below.
A 7.2 magnitude earthquake has just been measured in Japan. According to NHK public broadcaster, a tsunami warning has been issued for at least the coast due to the earthquake that occurred in the Pacific Ocean.
The earthquake registered an intensity of 6+ on Japan’s seismic scale of 1-7 in Aomori Prefecture, according to the JMA. Japan’s scale measures the intensity of shaking at specific locations, with 6+ representing severe tremors that make it difficult for people to remain standing.
