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Rapid manufacturing rebound, boosters, yen forecast

The rapid recovery in car exports in November probably has further to run and continued strength into next year poses upside risks to our forecast for a cumulative 3.3% rise in Japanese exports across Q4 and Q1 2022. However, the global spread of Omicron remains a downside risk to the recovery. If Omicron does take hold soon and proves to be more severe than early reports suggest, we doubt Japan's booster rollout will have made enough progress to change the maths much on government containment measures. Elsewhere, on the back of our more hawkish Fed view, we are now forecasting a weakening in the yen to 122 against the dollar by end-2023. – This will be the last Economics Weekly for 2021. The next Weekly will be sent on Friday 7th Jan. 2022 –
Tom Learmouth Japan Economist
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Japan Economics Weekly

Recovery will continue to disappoint

The slump in industrial output and the stagnation in real retail sales in May has prompted us to lower our estimate of Q2 GDP growth. While the easing of the lockdown in Shanghai will contribute to a rebound in motor vehicle output over coming months, the bigger picture is that supply shortages remain intense. And with external demand softening, Japan’s economy won’t recover as rapidly this year as most anticipate.

1 July 2022

Japan Data Response

Tankan (Q2), Labour Market (May) & Tokyo CPI (Jun.)

Today’s Tankan survey suggests that while the services sector is benefitting from the easing of virus restrictions, the outlook for the manufacturing sector is worsening. Meanwhile, the labour market didn’t tighten any further in May and inflation edged down in Tokyo in June, but we still expect the unemployment rate to fall further and underlying inflation to creep higher over coming months.

1 July 2022

Japan Data Response

Japan Industrial Production (May 2022)

The plunge in industrial output in May suggests that Japan’s recovery is disappointing yet again. The upshot is that it will take until the second half of the year for GDP to surpass its pre-virus level. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

30 June 2022

More from Tom Learmouth

Japan Data Response

Japan External Trade (Nov. 2021)

The jump in exports in November suggests that most supply chain constraints in the automobile sector had already eased last month. We think that exports will remain strong over the coming months as motor vehicle exports recover further and external demand for capital goods continues to rise. Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.

16 December 2021

Japan Economics Weekly

Wage-boosting tax breaks, Toyota setback

The government’s new plan to offer firms more generous tax deductions for raising wages is unlikely to lift wage growth to 3% as targeted by PM Kishida. But with smaller firms being offered corporate tax credits as high as 40%, we think the new measures may entice some firms into bigger wage hikes against a backdrop of tougher hiring conditions over the next few years. Meanwhile, renewed supply chain disruption in Vietnam – where daily cases are back at record highs – is a downside risk to our upbeat outlook for Japanese car production.

10 December 2021

Bank of Japan Watch

BoJ to extend Covid aid, won’t lose control of yields

While renewed virus restrictions are unlikely to be deflationary, we think Omicron fears will prompt the Bank of Japan to err on the side of caution and extend its emergency corporate funding measures to the end of September. Meanwhile, we disagree with the argument that 10-year JGB yields may spike past +0.25% if inflation surprises to the upside.

9 December 2021
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