Morgan Stanley Fixed-Asia Economics The Viewpoint Japans reflation story – Wha...-106579286.pdf

2024-02-27 00:00
Morgan Stanley Fixed-Asia Economics The Viewpoint Japans reflation story – Wha...-106579286.pdf

MForiAsiaEconomics|AsiaPacificTheViewpoint:Japan'sreflationstory–What'sdifferentthistimeSkepticsarguethatnotmuchhaschanged.Weseethingsdifferently.Macropolicieswillstayaccommodativeandengenderadecisiveshiftinwageandprice-settingbehaviours.Japanwilltransitiontoanewphaseofmoderate,sustainedinflationwithareturnofcorporatesectordynamism.MorganStanleyAsiaLimitedChetanAhyaChiefAsiaEconomistChetan.Ahya@morganstanley.com+8522239-7812MorganStanleyMUFGSecuritiesCo.,Ltd.TakeshiYamaguchiChiefJapanEconomistTakeshi.Yamaguchi@morganstanleymufg.com+8136836-5404MorganStanleyAsiaLimitedDerrickYKamAsiaEconomistDerrick.Kam@morganstanley.com+656834-8272MorganStanleyMUFGSecuritiesCo.,Ltd.MasayukiInuiEconomistMasayuki.Inui@morganstanleymufg.com+8136836-5407MorganStanleyAsiaLimitedJonathanCheungEconomistJonathan.Cheung@morganstanley.com+8522848-5652Exhibit1:What'schangedinJapanFactorDescriptionExternalbackdrop•Postpandemicglobalenvironmenthasbeeninflationary,ratherthanthelowflationenvironmentpostGFC•OtherDMcentralbankshaveliftedpolicyratestomultiple-yearhighsandovertheforecasthorizon,wedon’texpectotherkeyDMcentralbankstobebackatzeroratesand/ortakeupquantitativeeasing•BoJpolicyhasremainedaccommodative.USandJapanratedifferentialshavewidenedandcurrencydepreciationhashelpedreflationviaimportedinflationJapan'scoreinflation,GDPdeflatorandnominalGDPgrowth•Allareatover30-yearhighsDomesticpolicysetup•BOJisnotriskingpre-emptivetightening•Therefore,ther-ggapisatanidealandconducivelevelforthefirsttimesincethe1990assetbubbledeflationPriceandwagesettingbehaviourofthecorporatesectorandlabourmarket•Shiftingawayfrompaststatusquoofnopricehikesandnowagehikes•Workersaredemandinghigherpayandcorporatesappeartobemorewillingtohikewages•Wagegrowthisata26-yrhighCorporatesector'sfocusonrestructuringtoimprovereturns•CorporategovernancerelatedreformsaredrivingbalancesheetrestructuringandbeginningtorevivedynamisminthecorporatesectorSource:MorganStanleyResearchForimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.KeyTakeawaysJapanhasexperiencedaroundofreflation,withthecombinationofaccommodativepoliciesandaglobalreflationaryenvironment.Weareseeingsignsthatthisreflationwillbesustained,withshiftsincorporateandhouseholdbehaviours.WeremainconstructiveontheoutlookforJapan.WethinknominalGDPgrowthwillholdupatrobustlevels,andwillbestrongerthanitwasduring2013-19.Thisbackdropwillrevitalisethedynamismofthecorporatesectorandthelabourmarket.However,thetransitiontoanewequilibriumisnotyetcomplete,andweexpectmacropolicieswillneedtostayaccommodativetosustainthistrend.February18,202406:06PMGMTMIdea2SummaryJapanisthawingfromthedeepfreezeofprolongedlowflationTransitiontoanewequilibriumofmoderateinflationunderway:Foralmost30years,Japanfacedthechallengeofpersistentlowflation.NominalGDP,whichgrewatahealthyrateof5.4%duringthe1980sslippedsharplytoanaverageof1.9%inthe1990sandfurtherto-0.6%Yoverthe2000s.NominalGDPgrowthstartedtoinflecthigherpost2013,averaging1.6%over2013-19,andthishassincerisenfurtherto

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