Kristian Rouz — The Bank of Japan's (BOJ) unconventional policies of negative interest rates (NIRP) have made the island nation's wealthy even wealthier due to the abundance of cheap financing.
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However, this massive stimulus has arguably done little for the majority of Japanese households, as wage growth and broader inflation remains subdued, and GDP growth is still tepid.
Experts say deflationary pressures still persist despite years of cash injections, while risks to foreign trade and unstable costs of imports render the Japanese economy vulnerable to overseas shocks.
The Japanese government has recently downgraded its GDP growth rate reading for 3Q18, saying the economy had contracted 2.5 percent. One quarter of contraction does not mean Japan is in a recession, but it is stirring some concern over the nation's economic prospects.
"It is necessary to pay close attention to a risk that growing uncertainties could weigh on companies' sentiment about making investments", Kentaro Arita of the Mizuho Research Institute said.
This despite Japan currently being in the 73rd month of economic recovery since the last major recession, and the nation's industrial output is showing signs of acceleration despite the global trade worries.
For its part, the BOJ launched its unprecedented monetary stimulus back in 2013 to push Japan's inflation to its 2-percent target — which would also spur broader economic growth. In 2016, the BOJ cut rates into the negative territory. However, Japan's inflation stood at 1 percent as of this past October, dampening the GDP growth outlook.
"The economic slowdown in China is dragging down global growth", Ryutaro Kono of the Japanese branch of BNP Paribas Securities said.
Meanwhile, the economists polled by Bloomberg said they expect a further deceleration in Japan's inflation rate next year. This is mostly due to the expected cuts to mobile phone charges, as well as the lower oil prices.
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The latter, however, is too unpredictable due to the planned OPEC cuts to output — which could push crude prices towards $100/bbl and actually spur Japanese inflation.
Separately, a report from Nomura Research found the number of households with at least $4.4 mln in assets (or 500 mln yen) has risen to 84,000 this year from some 50,000 back in 2010. This category of "super-wealthy" accounts for only 0.16 percent of Japan's population.
However, Japan's total cash earnings growth was just 1.5 percent in October, despite the unemployment rate standing at 2.4 percent — which is ultra-low compared to other advanced nations. Experts say the lack of solid growth in corporate earnings and investment has hindered the gains in worker compensation, which has also weighed on the purchasing power of the vast majority of the Japanese.
The Bloomberg survey also found a rising share of economists who are expecting the BOJ to actually expand its stimulus in the coming months. Experts say the central bank could start buying equities to support stock market capitalisation — in hopes to spur business activity.
It is still unclear how such a change in BOJ policy will play out, but some say the cabinet of Prime Minister Shinzo Abe could ramp up its efforts to strike free trade deals, including with the US, to ensure stable growth in the nation's corporate earnings.
