Services spending slumps, spectre of new wave

The Bank of Japan’s broad measure of consumption released today reveals an unprecedented collapse in services spending in April. That supports our below-consensus forecast that GDP will contract by 9% q/q this quarter. With the nationwide state of emergency now over, a tentative recovery in consumer spending is underway. However, as the renewed rise in coronavirus cases in Tokyo this week underlines, a full rebound in economic activity is impossible while the threat of another wave of infections remains.
Tom Learmouth Japan Economist
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Japan Economics Update

BoJ unlikely to lift interest rates anytime soon

The Bank of Japan today upgraded its assessment of inflation risks to “broadly balanced” for the first time since 2014. However, it reiterated its pledge to keep expanding the monetary base until inflation exceeds 2% and also signaled that it will keep interest rates low. With inflation set to fall well short of the BoJ’s 2% target for the foreseeable future, the Bank won’t be able to tighten policy.

18 January 2022

Japan Data Response

Japan Machinery Orders (Nov. 2021)

The rise in machinery orders in November supports our view that business investment recovered strongly across Q4. And private investment should continue to rebound strongly this year as firms look past a brief hit from Omicron.

17 January 2022

Japan Economics Weekly

Strict isolation rules could cause severe shortages

While we think Japan’s economy entered 2022 just above its pre-pandemic level, consumer spending will probably be knocked back this quarter by light-touch restrictions which are likely to be reimposed across most of the country within the next couple of weeks. Moreover, the added transmissibility of Omicron is likely to lead to a sizeable wave of staff absences in Japan. While PM Kishida is set to reduce the isolation period for coronavirus patients and their close contacts from 14 to 10 days, that would still be a strict isolation regime when compared with most Western countries. All told, we think Omicron will limit the economy to just a 0.2% q/q rise this quarter before a rebound in growth across Q2 and Q3.

14 January 2022

More from Tom Learmouth

Japan Data Response

Japan Retail Sales & Industrial Production (Apr. 2021)

The sharp fall in retail sales and weaker than expected rise in industrial production in April suggests the economy was subdued even before states of emergency were declared, supporting our view that the economy won’t have rebounded from its weak Q1 this quarter.

31 May 2021

Japan Economics Weekly

State of emergency extension, Olympic fifth wave?

While the fourth wave of coronavirus has broken, with hospital capacity still stretched the government will today extend the emergency declarations covering half of the economy until 20th June. That supports our view that output won’t recover this quarter after a weak Q1. Further ahead, with the vaccine rollout accelerating we still expect a strong rebound from mid-Q3. But while the risks of importing dangerous virus variants during the Olympics are overblown, there certainly are downside risks from the more transmissible Indian variant which has already begun to spread in Japan. If it causes a fifth wave, then that would delay the economy’s recovery still further.

28 May 2021

Japan Data Response

Japan Labour Market (Apr. 2021)

The unemployment rate spiked back up in April after a surprise sharp fall in March. However, we think the jobless rate will fall back to around 2.6% over the coming months as employment resumes its recovery.

28 May 2021
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