Japan

Japan Chart Book

Japan Chart Book

Automobile sector set for swift rebound

While October’s trade data showed good exports still depressed by the recent collapse in domestic car production, there is growing anecdotal evidence that the auto sector is on the cusp of a rapid rebound. Toyota said that its global production in October was still 40% below normal, the same shortfall as in September. But production this month is likely to be only 15% below normal and higher than in the same month last year. In December, the company expects to produce a record one million cars globally, up 30% y/y in a bid to make up for lost ground. Nissan has similarly announced that it is ramping up production as supply shortages are dissipating fast. And Honda said today that it expects normal production to resume next month. Between them, these three firms account for more than half of vehicle sales in Japan. The collapse in domestic car production was caused by shortages of components from suppliers in Vietnam and elsewhere in Southeast Asia. But those suppliers’ factories are now getting back to full capacity. As such, most of Japan’s fall in goods exports and the sharp drop in durables consumption last quarter should reverse in Q4. Add in a sharp rebound in services spending due to the easing of domestic restrictions and GDP should rise by around 2.0% q/q this quarter after falling 0.8% q/q in Q3.

18 November 2021

Japan Chart Book

Domestic headwinds fading

While parts of Japan’s manufacturing sector remain under severe pressure from global supply chain shortages, domestic headwinds to the recovery have dissipated further in recent weeks. That supports our view that a strong rebound is brewing. Breaking 23,000 in late-August, the seven-day average of new infections has fallen to around 500 this week – the lowest in over a year. And with the number of patients in intensive care also at its lowest in a year, hospitals now have clear breathing space. That reduces the chances of fresh states of emergency having to be declared to combat a potential winter wave. In recent days mobility has been stronger than it was at the same stage in October 2020 which ­– by some measures – was the strongest month of the pandemic so far for consumption. And Tokyo announced today that it will on Monday remove its 9pm curfew request for the more than 80% bars & restaurants complying with the latest virus guidelines. Driven by a strong rebound in face-to-face service sector activity, we expect GDP to rise by 1.7% q/q, taking it above the pre-virus level this quarter.

19 October 2021

Japan Chart Book

Next PM will benefit from vaccine booster

The race to become the new LDP leader – and with it PM – formally began on Friday. With Delta cases plunging and the vaccination rate having caught up with many other advanced economies, whoever wins should be able to lift domestic restrictions and ride a strong recovery in Q4. Kono is by the far the most popular of the four candidates with the LDP-supporting public and, along with Kishida, currently has the most support amongst LDP lawmakers. (See Chart 1). Ishiba Shigeru – a rival to Kono in the popularity stakes who announced last week that he will not stand – is backing Kono, as is outgoing PM Suga. Ex-PM Abe’s long-term rival Ishiba has criticised Abenomics for favouring corporate profits over wages, and Kono appears to have absorbed some of his new supporter’s thinking in demanding this week that “we must shift our focus toward boosting household income, from corporate profits”. Kono has suggested a lower corporate tax rate for firms that distribute a high share of their income to their workers. And like all the other candidates, Kono has pledged to compile a stimulus package – to focus on renewable energy and 5G – which would provide another tailwind to the recovery over the coming months. We expect output to return to pre-virus levels in Q4 and to return to near its pre-virus path around the middle of next year.

20 September 2021
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Strong Q4 still on the cards

With daily cases surging to unprecedented levels and states of emergency extended to mid-September this week, there may not seem to be much light at the end of the tunnel for Japan’s economy. However, we’re cautiously optimistic that a strong recovery is just around the corner. Japan’s vaccine coverage is now not far off the rates seen in DMs where most domestic restrictions have already been “permanently” lifted. PM Suga outlined this week that he’s targeting getting 50% of the population fully vaccinated by the end of this month, and 60% by end-September. The vaccine rollout has progressed rapidly over the past couple of months and is broadly on track to meet those targets. The UK’s vaccination rate was only 53% when the last domestic restrictions were removed in England. Hospitalisations and deaths have remained contained in the UK despite daily cases peaking as high as 50,000-a-day. Even in Singapore – where virus containment measures have been far more heavy-handed than in Japan – domestic and border restrictions are being eased now that the vaccination rate has reached 70%. Japan should get to 70% by around late-October. Even if the Japanese government did wait until then to remove most domestic restrictions, it would still come in time for GDP to rebound strongly next quarter.

Japan Chart Book

Vaccines should limit Delta damage

While infections are now rising sharply nationwide – particularly in Tokyo where the Delta variant has the strongest hold – most of the vulnerable population are now fully vaccinated so we doubt restrictions will have to be tightened any further. Admittedly, the current state of emergency only active in Tokyo (19% of GPD) could be extended to other areas. But most major urban areas are already under quasi-emergency measures. Declaring a full state of emergency – where measures are only slightly more draconian – wouldn’t be a major additional drag. And the mobility data suggest states of emergency hurt economic activity progressively less each time they are declared. Moreover, there are already signs that vaccines are weakening the link between cases, hospitalisations and deaths. That makes sense given that 62% of those aged over-65s are now fully vaccinated. The vaccination rollout remains rapid, with the government well on course to hit its target of fully vaccinating all adults who want the jab by end-November. As such, we still expect most domestic restrictions to be permanently lifted from late-Q3 onwards which should enable the economy to get back to its pre-virus level before the end of this year.

Japan Chart Book

Vaccine bounce not too far away

Japan’s now fast-moving vaccine rollout is set to gather more speed. PM Suga’s one-million-a-day goal could be hit on a 7-day average basis as soon as tomorrow. 18-to-64-year-olds have from today been able to fill vacant slots at large-scale vaccination centres. And workplace vaccinations are due to begin on Monday. Admittedly, the official figures on vaccine doses lag the announced injection numbers. But the latter are probably more up-to-date measure: additional doses are added retrospectively to the official figures as they are confirmed. The acceleration in jabs bolsters our view that the economy is set for a strong rebound later in the year. Some media reports suggest that the government may have Tokyo under a quasi-state of emergency until the Olympics finish in early August. But we were already expecting activity to remain subdued early in Q3 as local authorities are reluctant to rapidly lift restrictions while vaccine coverage is still low and the threat from the Delta variant remains. We think the vaccine-led rebound will accelerate around the middle of Q3 and continue through Q4 as the economy gets back to full health.

16 June 2021

Japan Chart Book

Nationwide state of emergency touch and go

Off the back of the weak Q1 GDP data, we now expect output to only rise 2% across 2021. The economy is unlikely to recover much in Q2 as cases are close to record highs and calls for a nationwide state of emergency growing. Moreover, only 4% of the population has received at least one dose of the vaccine so far. However, we still think there will be a strong recovery from mid-Q3. While distortions in the number of tests conducted during and since the Golden Week holiday period make it difficult to draw definitive conclusions, daily cases have been falling in recent days. Encouragingly, new infections have fallen sharply in Osaka and Hyogo since states of emergency were declared in those prefectures three weeks ago. As the first prefectures where the UK variant took hold, Osaka and Hyogo should be ahead of the nationwide curve. And the vaccine rollout is accelerating. A record 483,328 jabs were administered on Monday.

Japan Chart Book

Osaka emergency to knock recovery back again

Tokyo, Hyogo and Kyoto are soon expected to join Osaka in asking the central government to declare a third state of emergency. While together those four prefectures only generate a third of national output, the experience during the second state of emergency suggests that such declarations will depress consumer spending nationwide. And with Osaka Governor Yoshimura targeting more draconian measures – such as business closures – than under the third wave to counter the UK-variant-driven fourth wave, we now expect consumer spending to flatline this quarter after a 1.5% q/q fall in Q1. That said, consumption should pick up rapidly in the second half of the year as the vaccine rollout accelerates. Japan is scheduled to have enough vaccine doses for all over-65s by end-June and for the entire adult population by end-September. Getting the vaccine into arms may take a little longer but we assume most of the vulnerable will have received jabs by Q3 and expect most restrictions to be lifted then.

21 April 2021
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