Economics & Growth | Equities | Global | Monetary Policy & Inflation
Podcast Transcript: Mikihiro Matsuoka on Japan Inflation, BoJ Outlook and Debt Problems
- By Bilal Hafeez
- 40 min read
This is an edited transcript of our podcast episode with Mikihiro Matsuoka, published 17 February 2023. Matsuoka San is the chief economist of SBI Securities in Japan. Before that, he was the chief economist for Japan at Deutsche Bank. Overall, he’s been involved in macroeconomic analysis at research institutions and financial institutions for the past 30 years. He’s known to be one of the leading Japan economists with unique insights on structural issues. He’s also been highly ranked in numerous surveys, including the Institutional Investor survey over the years. In the podcast, we discussed how Japan’s economic recovery is going, whether China’s reopening will boost Japan’s growth, current trends in Japan’s inflation, and much more. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email.
Introduction
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Now, onto this episode’s guest. Mikihiro Matsuoka. Matsuoka San is the chief economist of SBI Securities in Japan. Before that, he was the chief economist for Japan at Deutsche Bank. Overall, he’s been involved in macroeconomic analysis at research institutions and financial institutions for the past 30 years. He’s known to be one of the leading Japan economists with unique insights on structural issues. He’s also been highly ranked in numerous surveys, including the Institutional Investor survey over the years.
Onto our conversation. So, greetings, Matsuoka San, it’s always good to speak to you. I had you on last year as a guest, and it was really very well received. And today Japan has been a huge, huge focus for investors. It seems to happen every four or five years, Japan comes into the spotlight. So, I really did want to bring you back on and discuss this further. So welcome Matsuoka San.
Mikihiro Matsuoka:
Hi Bilal. Thank you very much for inviting me again.
Japan’s Post-Pandemic Recovery
Bilal Hafeez:
Now, I did want to talk about the Bank of Japan, but before we do that, I just wanted to get some context of Japan. So, when you look at the Japanese economy, how does it look to you, on the growth side, the labour market and so on?
Mikihiro Matsuoka:
We think that Japan is still in recovery mode, but this is getting weaker because on one hand we have delayed the start of the reopening since last year. However, the ongoing global recession, or how you call it, slow down, starts to weigh on the manufacturing sector. So that they are now competing with each other, so that the underlying strengths of the Japanese economy is somewhat weakening.
For example, in the fourth quarter last year, Japan’s growth was only at 0.6% annualised, despite that period, the start of the more full-scale reopening of the economy. So, I think already we are facing stronger headwind from the global economy, despite our own tailwind from the reopening of the economy.
China’s Reopening and Japan’s Growth
Bilal Hafeez:
On the global side, now we are seeing China reopening. We saw quite a dramatic end of zero-COVID in December last year. So now China’s reopening, will that have much of an impact on Japan? So, for example, if Chinese growth ends up going up to 5, 6% this year, last year, say, China was around 2% or so, will that help Japan?
Mikihiro Matsuoka:
To an extend, yes, but this time we must be very careful in the sense that the reopening of the China economy mainly benefits their domestic service activity, in which case some businesses operating in China will perhaps benefit. But in terms of the Japanese manufacturing activity, in terms of the exports, the benefit will probably be much more muted. And the second-round effects from the reopening in China would be a decline, or quite a substantial decline, of the likelihood of another round of the supply chain disruptions.
That’s quite positive, but in itself it doesn’t support any additional economic activity. It is this decline in the risk, not the outside positive impact. So in that sense, it has some net positive impact on Japan, but mainly for those operating in China.
Bilal Hafeez:
Okay. And you mentioned Q4 GDP in Japan was relatively weak, even though Japan was reopening, why hasn’t the Japanese recovery been stronger?
Mikihiro Matsuoka: I think during that Q4 period we had another COVID wave, that may have dented some of the spark of domestic activity, like tourism and so on. In addition, we think that private consumption, when we look at the monthly data, it looks still very moderate. It’s growing, but only at a very faint pace. I think that suggests that reopening itself affects positively in some industries, but on net, there is some temporal relocation or consumption between period, or between goods and services, so that net, you may have increased some spending on tourism. But to do that you have to reduce some other spending. As a result, on the macro bases, I think the contribution from the reopening on the entire consumption seems to be very moderate.
Current Inflation Trends in Japan
Bilal Hafeez:
Yeah. And if we move over to the inflation side, what we see is headline inflation seems to have picked up in Japan quite sharply, it’s notably above 2%. But then looking at different core measures, not as strong. How would you characterise the Japan inflation picture?
Mikihiro Matsuoka:
I think that the total inflation in CPI is rising at about 4% year-on-year, but a large part of that has come from three sources, most of which are considered transitory or exogenous to Japan. One is energy, second is food, and third is yen depreciation. And all of them have been reversing its direction, so that the total CPI inflation is likely to be peaking sometime in the early part of this year, perhaps the first quarter. And as such, we do not anticipate 2% inflation to be sustained towards the end of this year or into next year.
Why Has Japan’s Inflation Not Risen Higher?
Bilal Hafeez:
I was going to just ask, on the inflation side, just before you go into more of the details, 4% headline inflation is obviously high, but in the US, in Europe, in the UK, we saw inflation closer to 10%, 8 to 10%, even Korea saw higher inflation and places like that. Why didn’t Japanese inflation go up towards 6, 7, 8%? I mean Japan is a massive oil importer as well.
Mikihiro Matsuoka:
There are several types of government intervention in terms of the price setting. One is that the government has decided to give some subsidies to intermediaries in the processing of the fuel into retail gas stations. And that is considered to be declining in CPI based fuel prices because we pay less than otherwise. That is considered a declining CPI. It’s a kind of a government intervention.
Similar to price to travel spending, they also pay some subsidies to the industries, and they lower the prices we pay from the consumers, that is also considered a decline in CPI. So that kind of intervention tends to depress CPI to some extent. And I think similar is happening in France, where your CPI inflation is slightly moderate than some other European countries.
Bilal Hafeez:
And then you were going to talk about the outlook for inflation?
Mikihiro Matsuoka:
If I may. We think that overall inflation is likely to come down to the tune of about 1% or around 1 and a half percent towards the end of this year and stay there. Depending on how you assume the global oil prices and food prices, we simply assume that oil prices at around 70 to $80 a barrel to continue. And the subsidisation to include prices, that’s the assumption.
Regarding the core, ex food and energy, it’s running at about 1 and a half percent at the moment. And this may sustain at the current rate, but some of the effects of the initial round of the price hikes will begin to fade. So that, again in core CPI inflation, we anticipate around 1%, maybe up to 1 and a half percent at the end of this year. So, in either metric, 2% seems to be either remote or a one-off.
Bilal Hafeez:
Yeah. And on the core inflation side, the reported core inflation numbers, it’s often ex fresh food and energy, rather than ex food and energy, unlike the Western economies, why does Japan look at ex fresh foods rather than ex food?
Mikihiro Matsuoka:
That was based on the decision that the BOJ made 10 years ago, that we spend a relatively large proportion on food spending, out of the total consumption. So that if you cut back all the food spending, that the core inflation has a very small share, like 55 or 60%, unlike around 70% for many other developed countries. That’s one reason why they decided to remove just the fresh food. But in these days with the distinction between various types of the core inflation has become a bit vague. So, I would imagine, given the current unique situation, that the contribution mainly coming from food and energy, it’s probably safer to look at the Western definition of core instead of the Japanese definition.
Bilal Hafeez:
And that’s where the core that you mentioned earlier is the Western definition, ex overall food and energy. Because if you look at core ex fresh food and energy, that’s running at a higher level than the Western definition so to speak?
Mikihiro Matsuoka:
Right.
Japan’s Labour Market and Wage Growth
Bilal Hafeez:
Yeah. And what about wages? The Bank of Japan often talks about wanting higher wages, and people talk about wage-price inflation spirals. So, where are we on wages in Japan? So, for the benefit of people who are just listening and not seeing the video, we have some charts, looking at the breakdown of Japanese inflation. And as Matsuoka San said, it seems like the bulk of it has been driven by food and energy. And the slides will be available on the show notes as well, I should add.
So, we’re looking at a slide now of different measures of the labour market. So, Matsuoka San, if you could just talk us through as descriptively as possible, so that if people don’t have the slides they’ll also understand as well?
Mikihiro Matsuoka:
Basically, wages have several definitions as well, like aggregate nominal wages, or per capita monthly wages, or hourly wages. And those three behave somewhat differently in Japan. Because of that, there is confusion, but let me say that currently nominal aggregate wages, that’s on the top right chart, has been running at about 2 and a half to 3% a year. That’s grown for the most part of, say, the past seven years or so on a steady basis.
Bilal Hafeez:
So, when you say nominal aggregate wages, that’s the total wages paid to everybody collectively in Japan?
Mikihiro Matsuoka:
Yes, yes.
Bilal Hafeez:
Yeah.
Mikihiro Matsuoka:
But a large part of this has come from rising employment, which is a green line here.
Bilal Hafeez:
So, more people have entered the labour force, so there’s more workers now?
Mikihiro Matsuoka:
Yes. And the other component consisting of these nominal aggregate wages is the per capita wages, that’s the blue line here. And that’s rising only a half percent a year, maybe 0.7 or 0.8% a year. This is the per capita results. And that’s very, very moderate. And usually, people are talking about this blue line movement. And people want this blue line growth rate to jump as much as possible, like 2%, 3%, 4%. I wonder if this is a bit difficult to achieve because we are already facing rising labour share, i.e., employees have already gotten expanding share out of the economic output, and as a result, labour share is rising. And if we want more wages then the labour share will have to rise farther and probably at the expense of the profit margin of the companies.
We can see that chart in the next page, on page 11 on the top line, this thick orange line is the labour share that’s online already.
Bilal Hafeez:
Yeah, so what we are looking at is the labour share, which is how much labour takes out of GDP. And that’s been rising since 2015 pretty much from the chart. So, from 2015 it was around 48% or so. Now it’s gone up to around 52, up to around 53%. So, it’s been quite a noticeable increase in the labour share of GDP more than 50%, which is interesting. It’s much higher than what you see in say the United States.
Mikihiro Matsuoka:
So, in that sense, or at least I think, that the strong demand for higher raises or higher wage growth may be justifiable from a humanitarian perspective. In terms of the reality, it’s rather difficult, except some very large companies, which can afford to do so because of their large exposure to the overseas economies, from which they are a much larger proportion of income. But for small and very small companies where they don’t have any overseas exposure, they can’t afford to make higher wages to employees.
Bilal Hafeez:
And just from a philosophical perspective or an economic perspective, do you think the central bank can influence wages or not? Because the BOJ, when I look at speeds of Kuroda and other Bank of Japan members, they often talk about how they want wages to go up and they want policy to support that. But in your view, is that the right way of thinking about it, that the central bank can influence wages or not?
Mikihiro Matsuoka:
Indirectly they can if they propose such practices to the businesses, but this is mostly the government responsibility, or to say there is a company’s responsibility depending on to what extent they can afford. So, in a moral sense it may be possible but is not necessarily the right way of interacting with the businesses. And I think that Mr. Kuroda and some other people at BOJ mentioned wages because they think that a virtual cycle in the labour market is necessary for inflation to be sustained at a higher level, like 2% or higher. And they also understand a large part of the inflation acceleration so far doesn’t reflect an improving labour market. So, in that sense they wanted to see a better labour market to generally raise the temperature of the economy.
Why Did the BoJ Adjust Its YCC Policy in December 2022?
Bilal Hafeez:
Okay. And we’ll come on to talk about Kuroda and his legacy later in the podcast. But obviously there’s been a lot of focus on the Bank of Japan recently, we had the action by the Bank of Japan in December to change their yield curve control or YCC measure. So that was the policy where they targeted 10-year interest rates in Japan to be within a band. It’s changed over time to plus or minus 0.25% around zero. And then in December they moved it to plus or minus 0.5%. It came as a surprise. Why do you think they made that action in December?
Mikihiro Matsuoka:
I found it a bit bizarre, frankly speaking, and it seems to have come from the dysfunctioning of the JGB market where the transactions evaporated and a market mechanism doesn’t find appropriate prices, and as such they decided to widen the band of the YCC at 10 years. However, this looks a bit odd because permitting higher band suggests naturally tightening of the market policy no matter how you make some kind of explanation later on.
So, whether Japan is in a good enough situation to accept some kind of market tightening is still debatable in my view. So, I find it a bit odd, and why they come at that particular moment, I have no explanation that’s satisfying to myself.
Bilal Hafeez:
I mean there was some speculation that there was government pressure for them to change YCC. One question I guess in that context is, does the government have a view on YCC or not? Do they want tighter policy, or do they want the 10-year yield to not be constrained? Is there a government position on this?
Mikihiro Matsuoka:
The government position on the YCC in my view is a bit ambiguous. On the one hand, they want to accommodate monetary policy, but on the other hand they want to avoid excessive yen depreciation. So, their worry is probably coming from a weaker yen, which will stymie the standard household sectors or businesses in general in their view, so they try to pressure the BOJ in that sense that higher yield would bring some of the weaker yen pressure.
The BoJ’s New Governor
Bilal Hafeez:
And since then, we’ve had the announcement of the next Bank of Japan governor, can you talk to that of what your view is on the new perspective governor?
Mikihiro Matsuoka:
The government has proposed Professor Kazuo Ueda as the next governor and two other candidates for deputy governance. Mr. Ueda had been a possible member in the past, at which he actually voted against the proposal to remove the interest policy in 2000 on the background of the possibility that would weaken the economy, and made the BOJ return to their interest rate policy. And in that sense, we think that he has a logical sense that the dynamic in consistency of the monetary policy fits into its action.
In other words, if you prioritise market normalisation or tighten and there is a boom line back to you, if it’s premature, he decided it’s probably premature at that point.
Bilal Hafeez:
So, this was back in 2000, so when Ueda was part of the Bank of Japan committee, he was against ending low rates early because he was worried that could lead to economic weakness which would come back to hurt the reputation of the Bank of Japan. So, he sounds like he’s cautious or dovish, I suppose?
Mikihiro Matsuoka:
I would say so. He’s probably reasonable and probably dovish as well. But one other concern is that he was also worried about expanding the quantitative region in 2002 onward because once we are in there is not a possible rational way to resolve it. And as a result, we are now having more than 500 trillion-yen JGBs at BOJ’s balance sheet. In that sense he is also cautious about too much aggressive monetary easing at that point.
Bilal Hafeez:
So, both sides you can argue it. So, he’s against too much monetary easing as well and balance sheet expansion because he thought that that would be hard to unwind and be problematic. So, from what you say, it sounds like you could argue both sides that he’s somewhere in the middle almost?
Mikihiro Matsuoka:
Right. So, at the time of 2000, he or no one anticipated the BOJ to have 500 trillion-yen JGBs. So, in that sense the first comment would be very reasonable and given that his second comment on the risk of too much expansion on the balance sheet, it can be also just five or 20 years ago. But given that Japan’s economic weakness continues for almost the past 30 years, the balance sheet ended up with such a scale. And it is also unavoidable to a degree no matter whether Mr. Kuroda adopted such an aggressive policy or not, Japan’s potential growth rate is very low and as such the period of being in a zero-interest rate policy can be much longer than any other global countries.
Outlook on BoJ Actions
Bilal Hafeez:
And with the change in the composition of the Bank of Japan now, what’s your expectation on what their policy changes will be in the next three to six months? Will they abandon YCC? Will they exit zero rates or negative rates? What do you think in terms of policy actions that they’re likely to do?
Mikihiro Matsuoka:
My view is that no additional action towards monetary policy normalisation for the rest of this year. That may sound a bit odd but given that based on the most recent brief media interview with Mr. Ueda, he mentioned that the current monetary policy seems appropriate and justified, which suggests whether he is really willing to continue that course, that’s a different question, but given Japanese economy’s condition and inflation of our economy, he thinks that there is no room to make any change.
And I also think given that the transitory nature of inflation exceedingly currently 2% and the possible hurdles in the labour market against the virtual cycle, no matter who is appointed, I think that the reasonable conclusion is to maintain the current stance until something very good eventually comes.
Bilal Hafeez:
And so, when you say no action, that includes no adjustments to YCC as well?
Mikihiro Matsuoka:
No actions. Right.
Bilal Hafeez:
Yeah. I mean what circumstances could you see where the Bank of Japan does do something say for YCC, what would need to happen for you to think that actually they will abandon YCC?
Mikihiro Matsuoka:
That’s quite high hurdles they must overcome. I just mentioned a bit earlier that we have a transitory nature of inflation. Number two, labour market has some self-defeating nature not to grow in a virtual cycle, in Japan it has a very low potential growth rate. So, all of these will be hurdles for any possible change, including the YCC notification. In my opinion as such, only if we see more prolonged economic expansion along with a slow but steady increase in inflation up to 2%, then I think that the modification to the YCC can be adapted.
The reason why I am personally very cautious about premature adjustment is based on the dynamic inconsistency. Once you introduce such a change ahead of normalisation of the real economy, it can’t continue. This happened in Japan several times like 1997, 2006, all they adopted premature monetary normalisation. And this is not Japan’s only problem, but also in the ECD in 2011 just before the onset of the Euro crisis, and take attention in the US in 2013, all suggest whether which to choose a normalisation of monetary policy or the real economy, we should choose real economy not monetary policy normalisation. That will be a very important lesson we learned in the past 20, 30 years. And based on that, I tend to be very cautious in the next step.
Bilal Hafeez:
And you don’t seem to put much weight on the argument around the dysfunction in the JGB markets. You don’t seem to think that’s a big issue?
Mikihiro Matsuoka:
There are many issues I think, and dysfunction in the JGB market is also one important issue. But humble speaking I would say again, we must choose either real economy or addressing dysfunction of the JGB market. In that sense, I would imagine it’s probably better to focus on the real economy and maintaining the current accommodation for some time to come.
Bilal Hafeez:
And now that we’re likely, well we will get Ueda as the new governor going forward, Kuroda will step down, what do you think Kuroda’s main legacy will be? Did he achieve success in your view? Did he fail in his objectives? How do you view the Kuroda era for the Bank of Japan?
Mikihiro Matsuoka:
I understand there are many different things, but in my view what he has succeeded is that he didn’t make mistakes except the December YCC at this point. And that’s probably the very important contribution of not putting the economy back in a stagnation. For example, in terms of nominal GDP to which I think monetary policy can influence since introduction of QE in 2013 when he was appointed, the Japan nominal GDP has been growing up until the onset of the pandemic at about 1.7% per year. That’s a meagre growth from your perspective, but from a Japanese perspective, suffering a lost generation, that’s quite a substantial achievement on the back of continuing this quantitative reason.
So, in that sense, even if he didn’t make 2% inflation achievable, the recovery of nominal GDP is much more important in my view. If that continues, that 2%, some, even if not all, of the problems we can face like fiscal deficit ageing can be alleviated.
Prime Ministers Abe and Kishida Compared
Bilal Hafeez:
Yeah. And on another side, on the government side, we obviously had Abe, Prime Minister Abe and we had Abenomics. Now have Kishida, the new prime minister over the past year or so. Is there a difference would you say, is there Kishida economics or how do you make a contrast between Arb and Kishida in terms of economic policy or how they’ll be known?
Mikihiro Matsuoka:
I see. I would say that there are some differences mainly in the emphasis point. Others put more emphasis on growth. Kishida on redistribution of income. I would say it’s a too simple distinction, but in that sense Kishida still tried to stick to what others did, that is a part of it. So, it’s not such a dichotomy distinction, but to a degree Kishida focuses more on the distribution side.
For example, he’s trying to do some additional support for childcare, in which case Japan’s GDP share by the government help on child-rearing is skewing much lower than other developed countries and he tries to address that.
Could Japan’s Debt Markets Blow Up?
Bilal Hafeez:
Okay. Yeah, understood. And in terms of the fiscal side, you mentioned fiscal earlier, some people now are starting to say is this the moment where Japan’s debt dynamics will finally come to bite Japan and JGB markets will blow up and Japan will implode because the debt levels are so high? What’s your view on that?
Mikihiro Matsuoka:
On the fiscal policy per se, I have a tab on page 31, just in case you can later put it on there.
Bilal Hafeez:
Yeah, let me just show that chart. And so, these are some charts of the different fiscal measures government spending as a share of GDP compared to other countries. So yeah, Matsuoka San, if you could just talk us through this?
Mikihiro Matsuoka:
So, after the onset of the pandemic, all the governments in the developed countries tried to support the economy by expanding their total government expenditures by about 3 to 5% of GDP per year. And that’s the jump on the top left chart. However, many countries started to withdraw it on the second right side chart, the share of GDP and government spending since 2020 has been declining except some countries including Japan, where they tried to maintain such stimulus ongoing on the scale of about 5% of GDP or so, even in 2022.
So, in that sense, Japan tries to keep that when other countries are withdrawing. So, this is probably the first time we saw Japan and the rest of the developed countries moving in the opposite direction in fiscal policy. Previously in the past 30 years, they moved in tandem with each other so that Japan was not so conspicuous. But this time it’s different. Japan tries to support the economy by fiscal spending, but others are withdrawing, this may put financial market attention to Japan’s say fiscal deficit or government debt, even though I still think that Japan has a substantial buffer against such pressures.
For example, I tried to measure how vulnerable each country’s finances of the government by constructing a so-called fiscal vulnerability index. That’s in your page 32. And this consists of seven various indicators like private sector financial assets minus government debt, current account balance of the balance of payments, net external assets, government fiscal balance and so on, all measured in some deviation. And take the simple average. In the third quarter last year, Japan is in the middle of the pack, 10th highest out of 24 countries.
Bilal Hafeez:
Yeah, according to this metric, so you’ve looked at different measures that affect how vulnerable a country is to a fiscal crisis. And Japan is middle of the pack. The countries that are in a worse situation are countries like Greece, which is probably not a surprise, but United States, Italy, UK, Spain are higher, are more vulnerable than Japan, presumably part of that is because their current account dynamics are worse, I’m guessing. And then also their net external assets are presumably lower or worse than say Japan’s?
Mikihiro Matsuoka:
Yeah, that’s correct. Japan has some vulnerabilities in terms of the net government debt, which is second or third highest. And in terms of fiscal balance as well, it’s still running a 6% of fiscal deficit to GDP. However, Japan has some substantial financial assets in the private sector that can offset in the unlikely event that the government made a default, and worse, the government debt becomes worth less, they still have quite substantial financial buffers along with other high-income countries. In that sense, I think Japan is still an average country among developed countries, not the extremely vulnerable or dangerous country.
Outlook on the Yen, JGBs, and Equities
Bilal Hafeez:
Okay, yeah. And so overall on the economy, your sense is that Japan’s in recovery mode, but that recovery’s weakening and the economy is likely to slow down as the year goes on. Inflation is transitory in Japan, mainly driven by food, energy, and a weak yen. And so, the inflation picture will start to turn lower. So probably go head down towards 1%. You think the Bank of Japan’s unlikely to do anything after the surprise YCC in December, that’s enough for them. Do you have a view on Japanese markets? So Japanese equities, the Japanese yen, JGBs, any outlooks on Japanese markets?
Mikihiro Matsuoka:
On the yen, it depends on those US factors and Japanese factors. Usually, US factors dominate as you know. So, it depends, when we stop rating rates more than when the BOJ does something. So, in a sense, I think yen, dollar may continue to remain where is, with one exception in the sense current level of the dollar yen level at 130 is possibly 60, 70% away from the purchasing power point trend. Although you can draw so many different lines and different slopes regarding the purchasing power point.
So, you can easily repeat my message, but no matter which line you choose, it’s probably 40% away from GDP. That’s quite a substantial deviation relative to the past 40 years. One possible Japan specific factor to strengthen yen, it’s too weak relative to the purchasing power point. On fixed income, I would imagine very simply there are three or four factors. Basically, the balance sheet of the BOJ, US, Japan’s short term interest rates and inflation. And you can see them, different combinations of the changes in those expiratory variables. But no matter how you put them in, one assumption, I think, is the maximum increase in the yield would be up to 80 or 100 basis points, not on the order of 2% or 3%, unless you assume a complete removal of the balance sheet of the 500 out of the BOJ out of the balance sheet, which is very unlikely to materialise anytime soon. So, on that assumption, the upper band on the JGB may be not necessarily 50 basis points, but somewhere up to 1% basis points.
Bilal Hafeez:
Okay. And then Japanese equities, any view on Japanese equities?
Mikihiro Matsuoka:
It’s closely linked with the US market. So, it also in that sense, whether US doesn’t fall into a recession and grow somehow would actually support the Japanese equity as well.
Bilal Hafeez:
And I know you also follow international economies as well. It’s interesting to hear your view sitting in Tokyo. What’s your take on the US economy and the Fed?
View on the US Economy
Mikihiro Matsuoka:
I think the US economy is slowing and it is probably falling into a recession, despite the market expectation it will avoid it, because at this scale of the multi tighten on the scale of 500 basis points is quite substantial and they look at the inflation and tighten further the inflation, the lagging indicator, and that will inevitably delay the timing of the end of the rate heights and also delay the timing of the start of the rate cut, that will be quite detrimental to economic activity.
So that’s my view. Even though that the current unemployment rate is still 3 and a half percent and that sounds resilient, but already the housing market has been weakening, within a labour market other than the employment numbers appears to be easing little by little. So, all in all, I think that the US is still heading toward a weakening path into the last of this year, possibly into the first half of next year as well.
Books
Bilal Hafeez:
Yeah. Okay, great. Okay, that was a great run through of all the Japan macro and international as well. I did want to round off with just one question on books. The last time we spoke I asked for some book recommendations. Have you read anything good recently on the book side?
Mikihiro Matsuoka:
This is totally different from the economics, and I don’t have the exact name of that book at the moment. And it’s about Shakespeare.
Bilal Hafeez:
Oh, okay.
Mikihiro Matsuoka:
Some people wonder who wrote Shakespeare plays and sonnets. In that sense, there is the book called The Living Record: Shakespeare, Succession, and the Sonnets.
Bilal Hafeez:
Okay. Succession and Sonnets. So, it’s about what inspired Shakespeare to write the sonnets or who actually wrote it, it wasn’t Shakespeare? Are they questioning the authorship or?
Mikihiro Matsuoka:
Yes, presumably Shakespeare wrote both play and sonnets. And his camp believes it’s written by Edward De Vere, the 17th Earl of Oxford, and he thinks that sonnets is a record of keeping that to the future generations.
Bilal Hafeez:
Okay, that’s interesting.
Mikihiro Matsuoka:
It’s quite provocative, however, this is quite sensible to me.
Bilal Hafeez:
Yeah, no, no, absolutely. Yeah. So, it sounds like you have an interest in Shakespeare. Are you a big fan of Shakespeare’s works or something?
Mikihiro Matsuoka:
Actually, it doesn’t mean I am a big fan of Shakespeare, but I am very curious about who wrote those sonnets and plays and why this Edward De Vere wasn’t shown until about 100 years ago as a possible candidate. So, it’s a kind of Thomas Kuhn’s Revolution in scientific discovery or up until now, up until some point people in that small community continues to believe saying A, and that must be a truth, but at some point things will change. Previously Ptolemaic astronomy was considered right, but eventually it was thrown out by Copernican universe. That kind of change may be happening here, not in science, but in literature.
Bilal Hafeez:
Okay. No, that’s great. No, no, I’m a big fan of Shakespeare, so I’ll make sure I read that book.
And so finally, how can people follow you? Is there any easy way for people to follow your work? Because I know you produce stuff for the institution you work for, so I’m not sure how accessible it is, but is there a way for people to somehow follow you?
Mikihiro Matsuoka:
My employer SBI Securities has opened an office in London where they have some broker related businesses. And if you can reach them, they may be able to do some processing. Otherwise, we are still in an early stage of the business, so we have very limited resources in terms of the distributions. So unfortunately, that’s one way you can reach us. But if you see some interest, please reach my company email address. That’s somewhere on the presentation.
Bilal Hafeez:
Yeah, yeah. But I’ll make sure it’s included in the show notes as well, so it’s even more accessible to everybody. Okay, great. So, with that, I mean, thanks a lot. As usual, it’s great to speak to somebody who knows Japan so, so well. I mean lots of people outside of Japan have lots of misconceptions about Japan, so it’s good to hear real experts. And yeah, we’ll see what happens with the new BOJ leadership and we’ll see how the economy does going forward. So once again, thanks a lot, Matsuoka San.
Mikihiro Matsuoka:
Thank you very much for your time.
Bilal Hafeez:
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