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Shrinking balance sheet won’t lead to tighter policy

While Omicron is likely to intensify input price pressures, most Japanese firms will continue to absorb those costs in their margins, ensuring inflation stays well below the Bank’s 2% target. And in contrast to the Fed, a gradual shrinking of the BoJ’s balance sheet won’t lift long-term yields in Japan. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.
Tom Learmouth Japan Economist
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Japan Data Response

Japan External Trade (Jul. 2022)

Japan’s trade deficit widened to a record high in July but it should start to shrink over the coming months as supply shortages and commodity prices continue to ease. Asia Drop-In (25th Aug.): What’s the economic impact of a weak yen? What does the latest China-Taiwan flare-up mean for decoupling? How ugly are conditions in China’s real estate sector? Join economists from across our Asia services for this regular briefing on the region’s big investment stories. Register now.

17 August 2022

Japan Data Response

Japan GDP (Q2 2022 Preliminary)

Japan’s economy grew in Q2 driven mainly by private consumption, though the overall figure disappointed mainly due to fluctuations in stockbuilding that won’t last. The recovery should persist through Q3 and Q4, though the pace will slacken a bit, as strong investment momentum is offset by a more subdued consumption outlook. We expect GDP to return to its pre-virus trend before long.

15 August 2022

Japan Economics Weekly

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.

12 August 2022

More from Tom Learmouth

Japan Data Response

Japan Wages & Household Spending (Nov. 2021)

Wage growth fell to zero in November due a slump in bonus payments, but it should accelerate as the labour market tightens and the recent reopening feeds into a renewed recovery in overtime and bonus payments. Meanwhile, the small fall in household spending in November poses a slight downside risk to our view that consumer spending rebounded strongly in Q4.

7 January 2022

Japan Data Response

Japan Consumer Prices (Nov. 2021)

Headline inflation picked up in November due to another acceleration in energy inflation and a further rise in fresh food inflation. Underlying inflation remained weak, and while it will accelerate over the coming months it’s unlikely to break past +1.0% y/y.

24 December 2021

Japan Chart Book

Manufacturing rebound should continue into 2022

Q4 is shaping up to be strong in line with our forecast. Mobility data point to another sizeable rebound in consumer spending, and strong export data and optimistic firm forecasts suggest that industrial production has bounced back sharply. Full production reportedly resumed in the auto sector in December. And despite media reporting this week that Toyota is facing procurement delays for some chips, Japan’s premier carmaker is still expecting to produce 800,000 cars globally in January 2022 which would be 8% more than in January 2021. Provided auto suppliers inside Japan and abroad remain open through any Omicron waves, we expect manufacturing output to surpass its April peak early next year. We are assuming that PM Kishida won’t announce major domestic restrictions in response to any Omicron wave given early reports suggesting that the variant causes milder symptoms than Delta. All told, we think GDP will top up a 2.0% rebound in Q4 with a 1.3% q/q rise in Q1 2022 that would take it above its pre-pandemic level.

22 December 2021
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