An Uncertain Era

Amid the coronation of a new emperor, fears about the future of the Japanese economy are surfacing

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Chief Cabinet Secretary Yoshihide Suga announces the new imperial era to reporters.

Today, Emperor Akihito, who is 85, becomes the first Japanese emperor in two centuries to abdicate. To commemorate the enthronement of his son, Japan will hold a 10-day holiday, conveniently falling during the annual “golden week” spring vacation. Indicators from the digital realm, however, suggest Japanese citizens are feeling less than joyous about the economic prospects of the new “Reiwa” imperial era.

Last week, the Bank of Japan revised its forward guidance, announcing it would keep ultra-low interest rates in place until at least Spring 2020. It also revised down its forecast for economic growth and admitted (yet again) it was falling short of the its official inflation target.

Predata signals reveal that concerns about the health of the Japanese economy are increasingly salient among Japanese internet users. For example, online scrutiny of the Bank of Japan’s asset purchase program, a centerpiece of its ultra-loose monetary policy, surged to the highest level since early 2017. 

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One of the main drivers of the signal is activity on Japanese-language web pages related to Japan’s so-called “Lost Decade”, the name given to the 20-year period of macro stagnation triggered when the Bank of Japan abruptly raised rates to pop an asset bubble. Renewed digital interest in that period of Japan’s recent history suggests Japanese observers and investors are nervous — or perhaps seeing parallels in the outlook for the Reiwa economy.

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In any event, with slowing demand from China and the continued uncertainty surrounding trade already stoking anxiety in Asian economies, the Bank of Japan announcing, in effect, that it is more pessimistic about growth prospects appears to have rattled Japanese observers.