Only light-touch restrictions on horizon for now

Japan is in the midst of a third wave of COVID-19. Daily infections have already reached their previous early-August peak. Only the Hokkaido Government has responded with countermeasures so far, asking Sapporo residents to consider refraining from non-essential, non-urgent outings from today until 27th November. We expect some other local governments to request curfews and to ask citizens to refrain from some non-essential travel over the coming days and weeks. The experience from the second wave suggests that this wouldn’t inflict too much harm on private consumption. A return to the voluntary lockdown that contributed to Q2’s deep contraction appears unlikely at this stage. Indeed, the chair of the government’s expert committee on the virus recently told the FT that Japan was determined to keep its economy open during a third wave. Admittedly, if coronavirus cases continue to rise and start to put strain on the healthcare system, then the government’s hand could be forced. But while that’s a downside risk, the prospect of effective vaccines being available early next year is an upside risk to our forecasts. As such, for now we’re sticking with our forecast for GDP to rise by 1.2% q/q in both Q4 and Q1 2021 following Q3’s 5% q/q rise.
Tom Learmouth Japan Economist
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Japan Economics Weekly

Omicron restrictions wouldn’t jolt BoJ into action

Even if Omicron proves more transmissible than Delta, its impact on Japan’s economy could vary substantially depending on how deadly it is, how well it evades vaccines, and PM Kishida’s appetite for draconian containment measures. With supply shortages already severe, fresh restrictions on Japanese manufacturers’ global supply chains coupled with a global shift in spending away from services and back towards goods could cause input price pressures to intensify further. However, we doubt any resulting boost to core goods inflation would do much more than simply offset a drag from energy inflation. As such, core inflation would stay well short of the BoJ’s 2.0% target, keeping rate hikes off the table.

3 December 2021

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Labour Market & Industrial Production (Oct. 2021)

Employment fell sharply again in October despite the lifting of states of emergency declarations at the start of the month. However, it should rebound sharply across November and December in line with the revival in face-to-face service sector activity. And while industrial production only edged up in October, we think it too will rebound more strongly this month and next, potentially approaching its recent April peak in December.

30 November 2021

Japan Data Response

Japan Retail Sales (Oct. 2021)

Retail sales kept rising in October despite another drop in motor vehicles sales. With supply disruptions now starting to ease and mobility picking up, they should continue to increase.

29 November 2021

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Japan Wages & Household Spending (May 2021)

While the further acceleration in wage growth in May was again largely down to favourable base effects, we think wage growth will stay elevated as the labour market tightens and vaccines fuel a further recovery in overtime pay. Meanwhile, the only modest drop in household spending in May suggests that consumer spending may have edged up last quarter.

6 July 2021

Japan Data Response

Bank of Japan Tankan (Q2 2021)

The further rebound in the Q2 Tankan supports our view that the economy’s disappointing start to the year won’t prevent vaccines driving a strong rebound in the second half of the year. And firms’ upbeat capital spending plans bolster our view that business investment will soon recover sharply.

1 July 2021

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Transition to carbon neutral 2050 wouldn’t harm growth

Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to reach his goal of a carbon neutral 2050.

29 June 2021
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