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.