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Stronger growth, but inflation to rise only slowly

We are lifting our GDP forecasts for both this year and next to reflect the strength of recent data. We are not making any changes to our inflation forecasts though, as price pressures still appear extremely weak. If we are right, the Bank of Japan will not be tightening any time soon.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Japan Economics Update

The implications of an escalating Taiwan crisis

The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant on China both as a source of imported inputs as well as a destination for exports, while major disruptions to semiconductor production in Taiwan would severely restrain Japan’s manufacturing industry despite its smaller trade links with China.

10 August 2022

Japan Chart Book

Output will return to pre-virus trend eventually

With a record virus wave sweeping across the country and consumer confidence slumping, we’re slashing our forecast for Q3 consumption growth from 0.8% to 0.2%. While the government has refrained from declaring another state of emergency, spending was weakening even before virus cases started to surge. That means that GDP will remain much weaker in the near term than the pre-pandemic trend, forcing the Bank of Japan to keep policy loose even as central banks elsewhere are tightening the screws. However, we still expect that gap to close eventually, for two reasons. First, while the long-running rise in the labour force participation rate stalled over the last couple of years, the share of the population available for paid employment is now on the rise again. What’s more, mobility has recently reached pre-virus levels for the first time since the start of the pandemic, which suggests that households are learning to live with the virus even if currently they are not spending as before. The still very high household savings rate should fall in earnest before long.

8 August 2022

Japan Economics Weekly

The rise and fall of Japan's energy imports

Japan is still struggling to wean itself off fossil fuels despite a new government push to boost solar power. However, the country has become more energy efficient over the past decade, which has helped the economy weather the impact of rising global energy prices. Meanwhile, the government has recommended a 3.3% rise in the minimum wage, the largest move on record. While overall wage growth would get a boost over the next year, we think it would still remain well below the 3.0% level the BoJ maintains is needed to sustain inflation above its 2.0% target  

5 August 2022

More from Marcel Thieliant

Australia & New Zealand Economics Update

Hawkish RBA to hike rates in early-2023

The Reserve Bank of Australia delivered a hawkish surprise by not delaying the tapering of its bond purchases. And by predicting that it will hit its full employment mandate and make further progress towards its inflation target, it has opened the door for earlier rate hikes than its current guidance of 2024.    

3 August 2021

Japan Economics Update

What would a hard lockdown mean for Japan?

With the Delta variant lifting new infections to a record-high, calls for a “hard” lockdown are growing. If that happened, services activity would fall further but we doubt that the government would shut down industry. And with households and firms now better prepared to deal with virus restrictions, it seems likely that GDP wouldn’t revisit last year’s lows.  

2 August 2021

Australia & New Zealand Economics Weekly

Activity to rebound in fourth quarter

With the Sydney lockdown set to extend into the fourth quarter, we’ve lowered our Q3 GDP forecast further. However, we still think that the economy will bounce back in Q4 as vaccine hesitancy is collapsing and vaccine supply is set to pick up. As such, we’re sticking to our view that the RBA will hike interest rates in early-2023.

30 July 2021
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