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.