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.
Tom Learmouth Japan Economist
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Japan Data Response

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

Japan Economics Weekly

Government seeks to revive soggy chip industry

The breakdown of PM Kishida’s new supplementary budget released today showed that ¥600 billion has been allocated to reviving semiconductor manufacturing in Japan. The centrepiece of the plan is a new TSMC factory in Kumamoto Prefecture that will produce the mid-range chips critical for car production. Given recent supply disruptions caused by chip shortages, beefing up local production makes strategic sense. We think the government’s new interventionist approach to stimulating mid-range chip production may succeed, but plans to make inroads into high-range chip production are likely to fall flat.

26 November 2021

More from Tom Learmouth

Japan Economics Weekly

Drag from emergency measures fading

While new virus cases and hospitalisations have hit record-highs this week, the rebound in services consumption in Q2 suggests that households are getting increasingly blasé about state of emergency declarations. One small downside risk are part shortages resulting from virus disruptions in Southeast Asian suppliers. But given that Japan is on track to reach vaccination levels that have prompted other large advanced economies to ease virus restrictions by the end of this quarter, any setback in manufacturing will probably be overwhelmed by a further recovery in services.

20 August 2021

Japan Data Response

Japan Consumer Prices (Jul. 2021)

While headline inflation rose in July due to a pickup in energy inflation, it’s far weaker than the figure initially reported for June due to the introduction of a new CPI basket this month knocking off 0.7%pts from the y/y rate. Blocking out that noise though we think inflation will temporarily spike over the coming months due to upwards pressure on goods prices from supply shortages and the release of pent-up demand in the services sector.

20 August 2021

Japan Data Response

Japan GDP (Q2 2021 Preliminary)

Output only edged higher in the second quarter and won’t do much better this quarter as the Delta-driven fifth wave holds back consumer spending. But with the vaccine rollout still moving fast, a strong recovery in Q4 remains on the cards.

16 August 2021
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