Supply chain disruption could take the gloss off Q2

All domestic restrictions will be removed on Monday after two-and-a-half months of quasi-states of emergency covering most of the economy. Our assumption is that Japan – as PM Kishida hopes – will now move “towards normal times” as future virus waves shouldn’t require significant containment measures. But the emergence of a more infectious or more deadly variant of concern is a major risk to our forecast. And given Japanese automakers’ dependence on China for components, potential supply chain disruption caused by lockdowns there is also a downside risk. Meanwhile, the fall in the price of Brent crude oil to $100-110bp this week suggests that inflation may only touch, rather than surpass, 2% this year.