Japan - Common Economic Statistics

Uncollateralized Overnight Call Rate

The Uncollateralized Overnight Call Rate is the lending rate charged for short-term loans (usually just on an overnight basis) between banks in the banking system. This is a very high impact rate as it affects the rate charged by banks for commercial loans.

The Bank of Japan uses the Uncollateralized Overnight Call Rate as the Bank’s operating target and uses its ability to influence the money supply to keep the rate at or near a desired rate. Commercial banks in Japan often require additional funds to close the day’s transactions, and rather than liquidating assets or tying up reserve capital, the banks turn to the Uncollateralized Overnight Call – or simply the “overnight market” – to borrow the funds required to close the day’s transactions. As the name implies, overnight loans do not require collateral and must be repaid the following day by 10:00 AM.

One way that the Bank of Japan can influence the overnight rate is by managing the levels of intraday liquidity available within the banking system. Intraday liquidity refers to the funds needed by the commercial banks to conduct daily operations and liquidity needs tend to be highest early in the morning – especially for those banks that must repay any loans taking out in the overnight market as described above. The Bank of Japan provides this liquidity through interest-free intraday overdrafts - however, overdrafts must be backed-up by suitable collateral and all overdrafts must be repaid by the end of the business day.

By changing the collateral requirements or even the pool of overdraft funds available, the Bank of Japan can directly control the interest-free overdrafts which the banking system typically relies on to cover their overnight market obligations. If for instance, the Central Bank wants to increase the Overnight Call Rate, it can add to the pool of funds available for interest-free overdrafts; this effectively increases the demand for Overnight Loans as the commercial banks know they can use the overdrafts the next morning to replay the overnight loans. With an increase in demand for overnight loans, rates tend to increase as well as banks often raise their bids in order to ensure they receive the funds required prior to the end of the business day.

On the other hand, if the Bank wants to lower the Overnight rate, it can reduce the amount of money it offers interest free, thus making it more difficult – and potentially more costly – to borrow overnight funds. The reduction in demand should lead to a decrease in the overnight lending rate.

Official Basic Rate

The Official Basic Rate is the rate at which the Bank of Japan provides loans to financial institutions within the banking system.

Originally, the Official Basic Rate was set by the Bank for any direct loans extended to commercial banks. However, in 1994, this was changed to a floating rate that moved in accordance with other lending facilities available to Japanese financial institutions such as the Uncollateralized Overnight Call market and inter-bank Repurchase (Repo) Agreements.

Fixed-Income Securities

Tracks the historical yield for the specified fixed income security – for example, a 10-year bond.

The value of fixed income securities in the bond secondary market fluctuate in response to market conditions. As the name implies, the income for these instruments is “fixed” at a specified return rate (i.e. yield) together with the maturity date for the bond. The yield is based on current interest rates, the time to maturity, and the creditworthiness of the issuer. For instance, non-government bonds typically offer a higher return as these securities carry a greater risk than bonds backed by the government and investors expect some form of premium in return for accepting additional risk.

In addition, the longer the term of the bond, the greater the risk of losing value through what is known as liquidity spread. This term refers to the difference between the bond yield and short-term interest rates. As interest rates rise, the locked-in yield of a bond becomes less valuable as it does not adjust higher to compensate for the rising interest rates, thereby reducing the true value of the return. If short-term interest rates rise above the yield, the investor actually faces a negative liquidity spread.

Tokyo Repo Rates Yield Curve

Tracks the yield for repurchase agreements between financial institutions ranging in maturity from overnight to one year in length.

Repurchase agreements – or simply repos – are agreements whereby one party agrees to lend securities to a second party with the agreement that the original seller will repurchase the securities back at an agreed-upon date, and at a predetermined price. In the case of financial institutions, repos consists of cash loans and are typically on an overnight basis.

Commercial banks often require short-term funds to conduct daily operations and rather then liquidate assets, it is often preferable to enter into a repo agreement with another bank. The lending banks are free to charge whatever rate they wish, but in order to remain competitive, repo rates tend to remain fairly consistent.

For the banks offering the use of their funds in this manner provides the institution with the opportunity to earn greater returns then they could expect by depositing the money in a simple demand-deposit account. In addition to the higher returns, there is very little risk for the lending bank as there is very little chance that the borrowing bank would default when the repo matures.

The Repo Rates Yield Curve plots the yield for repos of varying lengths – from a simple overnight agreements to repos up to one year in length. To calculate the rate yield for this indicator, lending banks provide yield and maturity details to the Bank of Japan where the top and bottom 15% are eliminated – the Bank then averages the remaining yields to arrive at a plot point for each repo term.

Yield Curve

The yield curve plots the return on fixed income instruments. The shape of the curve illustrates the relationship between expected yields and time to maturity.

Bond yields are based on the duration of the bond (i.e. the time to maturity) and the creditworthiness of the issuer. In order to attract investors, non-government bond issuers must offer a higher return as these securities carry greater risks than bonds backed by the government and investors expect some form of premium in return for accepting the additional risk.

Long-term bonds are also at risk of losing value through a diminishing of the liquidity spread. This term refers to the difference between the bond yield and short-term interest rates. As interest rates rise, the locked-in yield of a bond becomes less valuable as it does not adjust higher to compensate for the rising interest rates, thereby reducing the true value of the return. If short-term interest rates rise above the yield, the investor actually has a negative liquidity spread.

Normal Yield Curve

A so-called “normal” yield curve is one that curves upwards in a concave manner. This indicates an increase in the yield (the x axis) as time to maturity (the y axis) increases. This follows the tenant of the Arbitrage Pricing Theory that states that the longer the term to maturity, the higher the yield. This approach rewards investors willing to lock their money into long-term bonds despite the increased risks noted earlier.

Flat Curve

A flat yield curve results when the yields are basically the same for all maturities. This indicates that investors are willing to accept yields on long-term instruments that do not include a premium above current short term yields. Investors would only accept this if they feel that the economy has little capacity for growth combined with the likelihood that interest rates will not rise.

Inverted Yield Curve

An inverted yield curve that slopes downwards over time indicates a negative outlook for the market in the long term and could suggest the onset of a prolonged economic downturn or possible recession. An inverted yield curve shows even greater long term pessimism than a flat curve – so much so that long-term bond yields actually fall below short-term yields (negative liquidity spread). The implication is that investors are willing to lock in investments at the current rate in the belief that yields will lower dramatically in the face of a worsening economy.

Humped Curve

A “humped” curve occurs when both short and long tem yields are equal but medium term yields are higher. This could indicate an expectation that the economy may be entering a period of growth but this growth is not expected to be sustained for the long term.

Gross Domestic Product

Gross Domestic Product (GDP) is the total value of all goods and services produced within the borders of a country for a given period of time. Everything produced in the country is counted without regard to the nationality of ownership of the firms producing the goods – in short, if it is produced within the country’s borders, it is counted as part of the GDP.

An increase in GDP is seen as a positive indicator suggesting that the economy is growing. This often results in increased demand for the dollar and could see an increase in value in the FX markets. As the value of a country’s production increases, a corresponding increase in the workforce is likely which suggests greater employment and higher incomes.

There are shortcomings in this assumption however, as volunteer work is not included in the basic GDP calculation; nor is work performed in the so-called underground economy. In this case, work done “under the table” or in exchange for other goods or services is not part of the GDP results.

Real GDP Versus Nominal GDP

When the value of goods and services from one time period is compared to another, changes in the inflation rate can account for some of the difference between multiple GDP results. In order to make it clear whether or not inflation has been factored in, economists use the term Real GDP to indicate GDP results that have been adjusted for inflation. This is the approach that best enables economists to determine if the economy has increased or contracted when compared to previous results.

GDP figures that have not been adjusted are usually referred to as Nominal or Current Dollar GDP amounts.

Relative GDP

Measures the percentage change in the Gross Domestic Product (i.e. the total value of all goods and services produced within the country) from the previous reporting period.

When determining GDP, everything produced in the country is counted without regard to the nationality of ownership of the firms producing the goods – in short, if it is produced within the country’s borders, it is counted as part of the GDP.

An increase in GDP is seen as a positive indicator suggesting that the economy is growing. This often results in increased demand for the dollar and could see an increase in value in the FX markets. As the value of a country’s production increases, a corresponding increase in the workforce is likely which suggests greater employment and higher incomes.

There are shortcomings in this assumption however, as volunteer work is not included in the basic GDP calculation; nor is work performed in the so-called underground economy. In this case, work done “under the table” or in exchange for other goods or services is not part of the GDP results.

Unemployment Rate

The percentage of individuals eligible for work and are currently looking for employment but unable to secure a position. Rising unemployment is a negative indicator that foreshadows a probable reduction in consumer spending.

For this report, the term unemployed refers to individuals of working age who did not receive payment for work-related or self-employment activities during the survey period. Also, the individual must have been available for work during this time and must have been actively looking for employment.

Students and homemakers, as well as others engaged in full-time pursuits not traditionally considered a typical wage-earning activity, are also considered unemployed if they meet the conditions of the definition above. In other words, a student of working age not currently employed but looking for work may be regarded as unemployed.

The obvious impact of rising unemployment is a decline in consumer spending due to a reduction in wages earned. Add to this the fact that workers who are employed but feeling vulnerable with respect to their continued employment typically reduce their spending in a bid to boost savings to prepare for possible job loss. This behavior further reduces consumer spending and can actually fuel additional layoffs.

Employed Persons

Shows the total number of individuals currently employed. This includes self-employment.

This graph tracks monthly changes in the number of employed persons. Any employment metric is an important indicator as to the health of an economy as employment can be directly tied to consumer spending. If employment remains strong and workers feel confident that prospects for continued employment remain likely, consumer spending can be expected to remain strong.

However, if employment is declining, then consumer spending can be expected to also decline. It is also likely that employees fearing for their continued employment will reduce their spending in order to add to their savings in anticipation of short-term unemployment, and this behavior further reduces consumer spending and can actually fuel additional layoffs.

Industrial Production

Measures the per period change in the production of primary industries (agriculture, fishing, and mining), secondary industries (manufacturing), and tertiary industries (provision of services to the final consumer). An increase from the previous period is seen as a positive indicator confirming growth in the economy.

The industries included in this category are integral to the region’s overall economy. A large segment of the population is employed in these sectors so continued growth bodes well for continuing employment. As an economic indicator, Industrial Production is particularly effective as these industries respond in a very predictable manner in response to changes in the economy. When the economy is growing for instance, consumer demand for manufactured goods typically rises as do energy requirements to power additional factories and facilities. During a downturn, consumer demand for durable goods retreats and this is reflected almost immediately in a drop in manufacturing and energy needs.

Relative Industrial Production

Measures the per period change in the production of primary industries (agriculture, fishing, and mining), secondary industries (manufacturing), and tertiary industries (provision of services to the final consumer). An increase from the previous period is seen as a positive indicator confirming growth in the economy.

The industries included in this category are integral to the region’s overall economy. A large segment of the population is employed in these sectors so continued growth bodes well for continuing employment. As an economic indicator, Industrial Production is particularly effective as these industries respond in a very predictable manner in response to changes in the economy. When the economy is growing for instance, consumer demand for manufactured goods typically rises as do energy requirements to power additional factories and facilities. During a downturn, consumer demand for durable goods retreats and this is reflected almost immediately in a drop in manufacturing and energy needs.

Retail Trade Index

Reveals changes in the total value of goods and services sold each month at the retail level. Used as a means to measure changes in consumption levels leading to possible inflation, the Retail Trade Index also provides insight into consumer confidence.

Consumer spending is one of the most relevant indicators pointing to the confidence consumers have in the economy. When people are relatively assured that their employment is secure and economic conditions remain favorable, retail spending tends to increase – when consumer confidence is low, retail spending is one of the first areas affected and this is reflected by decrease in the Retail Trade Index.

With respect to inflation, successive increases in the Retail Trade Index can suggest the inflationary pressures are creeping into the economy, and this can be confirmed by evaluating other indicators as well – especially the Consumer Price Index. When faced with accelerated consumer spending, Central Banks typically raise interest rates in a bid to make it more costly to borrow money and this often leads to a decline in consumer spending.

Retail Trade Index

Reveals changes in the total value of goods and services sold each month at the retail level. Used as a means to measure changes in consumption levels leading to possible inflation, the Retail Trade Index also provides insight into consumer confidence.

Consumer spending is one of the most relevant indicators pointing to the confidence consumers have in the economy. When people are relatively assured that their employment is secure and economic conditions remain favorable, retail spending tends to increase – when consumer confidence is low, retail spending is one of the first areas affected and this is reflected by decrease in the Retail Trade Index.

With respect to inflation, successive increases in the Retail Trade Index can suggest the inflationary pressures are creeping into the economy, and this can be confirmed by evaluating other indicators as well – especially the Consumer Price Index. When faced with accelerated consumer spending, Central Banks typically raise interest rates in a bid to make it more costly to borrow money and this often leads to a decline in consumer spending.

Relative Retail Trade Index

Reveals changes in the total value of goods and services sold each month at the retail level. Used as a means to measure changes in consumption levels leading to possible inflation, the Retail Trade Index also provides insight into consumer confidence.

Consumer spending is one of the most relevant indicators pointing to the confidence consumers have in the economy. When people are relatively assured that their employment is secure and economic conditions remain favorable, retail spending tends to increase – when consumer confidence is low, retail spending is one of the first areas affected and this is reflected by decrease in the Retail Trade Index.

With respect to inflation, successive increases in the Retail Trade Index can suggest the inflationary pressures are creeping into the economy, and this can be confirmed by evaluating other indicators as well – especially the Consumer Price Index. When faced with accelerated consumer spending, Central Banks typically raise interest rates in a bid to make it more costly to borrow money and this often leads to a decline in consumer spending.

Relative Retail Trade Index

Measures the percentage change in the Retail Trade Index from the previous period.

The Retail Trade Index reveals changes in the total value of goods and services sold each month at the retail level. Used as a means to measure changes in consumption levels leading to possible inflation, the Retail Trade Index also provides insight into consumer confidence.

Consumer spending is one of the most relevant indicators pointing to the confidence consumers have in the economy. When people are relatively assured that their employment is secure and economic conditions remain favorable, retail spending tends to increase – when consumer confidence is low, retails spending is one of the first areas affected and this is reflected by decrease in the Retail Trade Index.

With respect to inflation, successive increases in the Retail Trade Index can suggest the inflationary pressures are creeping into the economy, and this can be confirmed by evaluating other indicators as well – especially the Consumer Price Index. When faced with accelerated consumer spending, Central Banks typically raise interest rates in a bid to make it more costly to borrow money and this often leads to a decline in consumer spending.

Prime Rate

The Prime Rate is the benchmark rate for commercial loans in the Japanese banking system.

The prime rate is a generic term used by many countries to refer to the commercial rate reserved for the banking system’s best customers. Other rates are often referred to as “prime plus two” or “prime plus three” meaning that the rate is determined by the current prime rate plus two or three points respectively.

Tertiary Industry Index

The Tertiary Industry Index measures the percentage change in the output of industries destined for the domestic market.

The Tertiary Industry Index excludes manufacturing for exports and focuses on industries that service domestic needs. Information on the domestic wholesale and retail markets is incorporated into this index as is feedback from financial services, health care, real estate, and utilities including Japan’s system of nuclear power generating stations.

Relative Tertiary Industry Index

The Relative Tertiary Industry Index measures the percentage change in the output of industries destined for the domestic market.

The Tertiary Industry Index excludes manufacturing for exports and focuses on industries that service domestic needs. Information on the domestic wholesale and retail markets is incorporated into this index as is feedback from financial services, health care, real estate, and utilities including Japan’s system of nuclear power generating stations.

Domestic Corporate Goods Price Index (DCGPI)

Measures the percentage change in the price of goods bought and sold by corporations in Japan. This information can be used to evaluate the overall supply and demand for goods purchased and produced for the domestic market.

The Domestic Corporate Goods Price Index (DCGPI) evaluate the prices obtained by the goods bought and sold by companies operating within the domestic market. Prices are measured primarily when the goods are shipped by producers and wholesalers to destinations comprised of domestic retailers.

Relative Domestic Corporate Goods Price Index (DCGPI)

Measures the percentage change in the price of goods bought and sold by corporations in Japan. This information can be used to evaluate the overall supply and demand for goods purchased and produced for the domestic market.

The Domestic Corporate Goods Price Index (DCGPI) evaluate the prices obtained by the goods bought and sold by companies operating within the domestic market. Prices are measured primarily when the goods are shipped by producers and wholesalers to destinations comprised of domestic retailers.

Consumer Price Index (CPI)

Measures the percentage change in the Consumer Price Index (CPI) from the previous reporting period and is considered one of the most effective measures of inflation within an economy.

The Consumer Price Index is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112 for instance, it means that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

While inflation is a necessary part of economic growth, inflation exceeding 2% is generally seen as detrimental due to the erosion of the buying power of the nation’s currency. When high inflation becomes a concern, investors abandon the currency in search of other investment opportunities.

Relative CPI

Measures the percentage change in the Consumer Price Index (CPI) from the previous reporting period and is considered one of the most effective measures of inflation within an economy.

The Consumer Price Index is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112 for instance, it means that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

While inflation is a necessary part of economic growth, inflation exceeding 2% is generally seen as detrimental due to the erosion of the buying power of the nation’s currency. When high inflation becomes a concern, investors abandon the currency in search of other investment opportunities.

Core Consumer Price Index (CPI)

Measures the percentage change in the Core Consumer Price Index (CPI) from the previous period.

The Consumer Price Index is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112 for instance, it means that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

When calculating the Core CPI, data deemed to be volatile is often omitted so as not to skew the final results by wide fluctuations in one or two sectors. Food and energy prices are the ones most jurisdictions drop from the calculations, but Japan opts to include energy when calculation Core CPI. Given the fact that Japan is the world’s 3rd largest user of crude oil and relies heavily on imports to meet its demand, this means that a hike in the price of crude can have a pronounced effect on Japan’s Consumer Price Index.

Consumer Price Index Excluding Imputed Rent

Calculates the Consumer Price Index but does not include the cost of imputed rent. Imputed rent is a representative amount that owner occupiers save in rent payments by owning the properties in which they live.

The Consumer Price Index is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112 for instance, it means that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

The CPI excluding imputed rent calculation takes into account that, in theory, property owners save the rent they would be forced to pay if they did not own their homes. Imputed rent is estimated based on the current rental market for dwellings of equivalent size, location, and value.

Relative Consumer Price Index Excluding Imputed Rent

Calculates the Consumer Price Index but does not include the cost of imputed rent. Imputed rent is a representative amount that owner occupiers save in rent payments by owning the properties in which they live.

The Consumer Price Index is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112 for instance, it means that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

The CPI excluding imputed rent calculation takes into account that, in theory, property owners save the rent they would be forced to pay if they did not own their homes. Imputed rent is estimated based on the current rental market for dwellings of equivalent size, location, and value.

Relative Core CPI

Measures the percentage change in the Core Consumer Price Index (CPI) from the previous period.

The Consumer Price Index is a consumer-level analysis of the cost to buy a set basket of goods and services and is based on a starting index value of 100. If the CPI for the current period is 112 for instance, it means that it now costs 12% more to buy the same basket of goods today than it did when the index was first established. By comparing the monthly CPI data, you can easily detect changes in consumer buying power from month to month.

When calculating the Core CPI, data deemed to be volatile is often omitted so as not to skew the final results by wide fluctuations in one or two sectors. Food and energy prices are the ones most jurisdictions drop from the calculations, but Japan opts to include energy when calculation Core CPI. Given the fact that Japan is the world’s 3rd largest user of crude oil and relies heavily on imports to meet its demand, this means that a hike in the price of crude can have a pronounced effect on Japan’s Consumer Price Index.

Trade Balance

Compares the total value of imports and the total value of exports for the reporting period. A negative value indicates that more goods were imported than were exported (trade deficit) – conversely, a positive trade balance means that exports exceeded imports (trade surplus). This report is used by currency investors to determine demand for the currency.

In the case of a trade surplus or a decreasing trade deficit from the previous month, it naturally follows that countries importing goods must convert their currency to the domestic currency of the country supplying the goods. This results in an increased demand for the domestic currency thereby increasing its value.

In the case of a trade deficit or a trend towards a decreasing trade surplus, the importing country must convert more of their currency to the currency of the country from which they are buying goods. This leads to an increased supply of the domestic currency on the FX markets which could cause the domestic currency to lose value against other currencies.

Current Account

Shows the total inflow of new capital into a country. It is calculated as the total trade balance (exports minus imports), plus the net of income payments (interest and dividends), plus all unilateral transfers (foreign aid, taxes, and one-way gifts).

If the resulting number is positive, it shows a Current Account surplus; a negative value is a Current Account deficit. Note that a deficit means that more money left the country than entered the country in the form of exports and other transfers.