Any signs of GDP expansion and inflation in 2019 would be positive for the Japanese economy which is enjoying 2.4% unemployment as of October 2018.
Although many economists are looking at the Bank of Japan and broadcasting that it has been unsuccessful in its quest to achieve its 2 percent inflation target, there are many achievements that should be acknowledged. Despite this elusive 2 percent target still not being attained, we must point out that the Japanese unemployment rate is 2.4 percent as of October 2018, the lowest level since 1992. Even during the massive bubble built up in the 1980s, the unemployment rate did not fall below 2.0 percent, so it is safe to say that full employment has been achieved. In the year to October, the inflation rate is a mere 0.4%, far below the target level.
However, when we see that Japanese corporations are hiring again and the newest wave of college grades are seeing a better labor market in than anyone has seen in two decades, we do know that eventually there will be some inflation, again maybe not the target level but inflation all the same.
For its part, the BoJ continues to drive a combination of yield management and asset purchases, again with the goal of some success in the future. With a tightening jobs market and an economy running somewhat hot, the inflation issue might just be a matter of time or when, not if. Also, with the consumption tax increase scheduled for next October, the inflation target will likely be the dominant goal, with the tax possibly postponed again.
Finally, after a contraction in the third quarter, the key concern now will be positive GDP growth. This positive GDP expansion and slightly higher inflation would be welcomed in the year of 2019, especially before that October tax hike target date.