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PM frontrunner Kono may favour sharper taper

Dug in for an extended hold, the Bank of Japan won’t alter its major policy settings at its September meeting. Further ahead though, PM Suga’s successor – to be elected in two weeks’ time – may look towards prodding the Bank into shrinking its balance sheet.
Tom Learmouth Japan Economist
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Demographic woes persist, tourists waiting at the gate

An exodus of long-term migrants contributed to the 0.6% fall in Japan’s population last year but with border controls loosened since March net migration is bouncing back strongly. Even so, we still see GDP growth settling around 0.5% over the longer-term as a shrinking workforce offsets productivity gains. Meanwhile, Japan remains a highly popular tourist destination and once the onerous procedural requirements for entry are lifted, probably sometime in Q4, tourist arrivals and spending should rebound strongly.

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Japan Machinery Orders (Jul. 2021)

The rise in machinery orders in July and optimistic projections for August and September support our view that business investment will rise strongly again across Q3. And private investment should continue to rebound in Q4 and into next year as vaccines allow domestic restrictions to be lifted.

15 September 2021

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Ishiba could clear path for Kono to become PM

Kono Taro is emerging as the favourite to succeed Mr Suga as PM. While Kishida and Takaichi are viewed as safer hands by LDP party elders, the outspoken Kono’s popularity with the public gives him the edge on the eve of a general election where the ruling coalition fears losing seats. And if rumours that Ishiba Shigeru will not stand and instead back Mr Kono turn out to be true, then that would leave neoliberal reformer Kono as the clear frontrunner. While we expect a relatively large supplementary budget to be compiled in October regardless of who wins, each of the four main contenders are likely to take differing approaches to structural reform.

8 September 2021

Japan Data Response

Japan Wages & Household Spending (Jul. 2021)

Wage growth recovered in July and it should strengthen further over the coming months as the labour market tightens and vaccines fuel a further recovery in overtime pay. Meanwhile, the drop in household spending in July supports our view that consumer spending will fall across Q3.

7 September 2021
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