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.
Tom Learmouth Japan Economist
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Japan Chart Book

Hit to output from staff absences could be hard

Skyrocketing infections and a 10-day isolation requirement for close contacts of positive cases have resulted in a wave of staff absences in Japan. Domestic carmakers already struggling with chip shortages appear to have been among the first victims of strict isolation rules. Both Toyota and Honda were forced to close some production lines at the end of last week due to staff absences. Based on the National Institute of Infectious Disease’s analysis suggesting that each positive case has up to five close contacts, Nikkei estimates that 1.8 million people could be self-isolating by the end of the month. Assuming those in and out of the workforce are equally affected, that would translate into 1.3% of workers in Japan self-isolating. Despite a much lower caseload, that would be similar to staff absences in other advanced economies where we estimate that between 0.5% and 2% of workers are isolating. And with timely data provided by the Cabinet Office pointing to a surge in job vacancies at the end of the year, the wave of staff absences appears to be hitting just as firms are struggling to find new staff. Temporary hits to production from staff shortages will cause GDP to only tread water this quarter.

24 January 2022

Japan Data Response

Japan Flash PMIs (Jan. 2022)

The January flash PMI suggests that the manufacturing sector continues to expand at a rapid pace, but there are mounting signs that firms are passing on higher input costs to consumers. By contrast, activity in the services sector has slumped.

24 January 2022

Japan Economics Weekly

Restrictions may not last long, key Shunto approaching

With restrictions this week expanded to cover most of Japan’s economy, and surging infections already starting to cause staff shortages in some industries, GDP is only likely to tread water this quarter. But based on experience elsewhere, the Omicron surge may only last another couple of weeks before staff shortages ease and countermeasures start to be lifted again. Meanwhile, reports suggesting that Toyota’s labour union – sometimes seen as a bellwether in wage talks – will seek a sharp rise in bonus payments at this year’s Shunto could be an early sign that wage growth will pick up this year in line with PM Kishida’s wishes.

21 January 2022

More from Tom Learmouth

Japan Economics Weekly

Stimulus package large but smaller than reported

The stimulus unveiled today by PM Kishida’s new cabinet was broadly in line with expectations despite inflated headline figures quoted in media reports which we think are padded with loans and recycled funds. There was a case for the package to focus on long-term structural goals such as digitalisation and decarbonisation, as last year’s third supplementary budget did. But instead the new stimulus is geared towards propping up households and business with handouts. While that will give a boost to consumption, spending would be on course for a strong rebound in Q4 and Q1 even without any fiscal handouts. Despite today’s large package, unveiled spending this year is only around half of the spending announced in 2020. But given that government spending will still be far higher than 2019 levels this year, we’d still characterise fiscal policy as expansionary.

19 November 2021

Japan Data Response

Japan Consumer Prices (Oct. 2021)

Headline inflation edged down in October despite an acceleration in energy inflation. Hit yet again by weaker mobile phone tariff inflation underlying inflation weakened further into negative territory. We think underlying inflation will pick up over the coming months but only to a peak of around +1% y/y.

19 November 2021

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
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