Japan

Japan Economics Weekly

Kishida dissolves parliament, firms look to seniors

The ruling LDP appears to be bracing for a slimming down of its lower house majority in the general election that will take place on 31st October. That would make tangible structural reform progress under PM Kishida even less likely. And while a large fiscal stimulus package will be compiled immediately after the election, it’s likely to sustain the elevated fiscal support of the past year rather than act as a fresh driver of growth. Meanwhile, firms appear to be readying themselves for renewed labour shortages once the economy reopens by drawing up plans to re-employ more seniors. We expect further increases in over-60s employment to drive labour force participation higher over the next few years.

15 October 2021

Japan Data Response

Japan Machinery Orders (Aug. 2021)

The fall in machinery orders in August supports our view that the recovery in business investment stalled a little across Q3. But private investment should rebound more strongly in Q4 and into next year provided vaccines allow economic activity to return to somewhere near normal.

13 October 2021

Japan Economics Update

Why is inflation still so low in Japan?

The continued weakness in Japan’s inflation is partly due to the recent plunge in mobile phone tariffs and the long lags between global energy prices and household utility bills. Indeed, inflation is set to rise next year. But more muted cost pressures in manufacturing than in other advanced economies coupled with the reluctance of Japanese firms to raise output prices mean that inflation won’t surge as it has elsewhere.

12 October 2021

Key Forecasts

Main Economic & Market Forecasts

%q/q(%y/y) unless stated

Latest

Q3 2021

Q4 2021

Q1 2022

Q2 2022

2021

2022

2023

GDP

0.5 (7.7)

0.1 (2.3)

1.7 (1.1)

1.0 (3.3)

0.9 (3.7)

(2.4)

(3.7)

(2.0)

Private Consumption

0.9 (7.3)

-0.8 (1.1)

2.2 (1.0)

1.8 (4.2)

1.2 (4.4)

(1.6)

(5.0)

(2.1)

Consumer Prices

(-0.4)

(-0.1)

(0.7)

(0.9)

(1.0)

(-0.2)

(0.6)

(0.2)

Unemployment Rate (%, average)

2.8

2.8

2.5

2.4

2.4

2.7

2.4

2.4

Policy Rate (%)

-0.10

-0.10

-0.10

-0.10

-0.10

-0.10

-0.10

-0.10

Monetary Base (¥ Tr, average)

649

649

655

665

675

655

695

715

10 yr JGB, end period (%)

0.07

0.07

0.00

0.00

0.00

0.00

0.00

0.00

TOPIX, end period

2,023

2,030

1,950

1,988

2,025

1,950

2,100

2,250

¥/$, end period

114.2

111.9

115.0

115.0

115.0

115.0

115.0

115.0

¥/Euro, end period

132.5

129.9

132.3

132.3

132.3

132.3

132.3

138.0

¥/£, end period

156.8

150.4

155.3

155.3

155.3

155.3

155.3

155.3

Sources: Bloomberg, Thomson Reuters, Capital Economics


Kishida dissolves parliament, firms look to seniors

Japan Economics Weekly

17 October 2021

Our view

With the latest Delta wave having ebbed and the bulk of the population now fully vaccinated, the conditions for a sustained recovery in consumer spending are finally in place. Admittedly, supply shortages are a downside risk to the recovery in output and will also lift inflation a bit further. Even so, Japan will continue to buck the trend of soaring inflation seen elsewhere. The Bank of Japan is therefore set to keep policy loose for longer, even as other central banks start to tighten. The upshot is that the yen should weaken further against the dollar.

Latest Outlook

Japan Economic Outlook

Conditions for strong recovery finally in place

With the Delta wave having ebbed and the majority of the population now fully vaccinated, we expect a strong rebound in domestic demand over the coming months. But the inflation concerns that hang over other major developed economies won’t materialise and the Bank of Japan will keep policy loose for the foreseeable future.

7 October 2021