Supply shortages set to hold back manufacturers

Production of motor vehicles and electronics fell sharply in August and is well below pre-pandemic levels. This isn’t mainly due to weaker demand, which has moderated but remains healthy. Instead, it seems to be driven by mounting material shortages. Those shortages will probably persist for a while yet, posing a downside risk to our upbeat forecasts for 2022 GDP growth.
Marcel Thieliant Senior Japan, Australia & New Zealand 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 Marcel Thieliant

Japan Data Response

Tankan (Q3 2021)

The latest Tankan survey was stronger than most had anticipated, supporting our view that the economy will recover rapidly as the Delta wave has ebbed. However, there are mounting signs that the recovery in the manufacturing sector will be hampered by supply shortages.

1 October 2021

RBA Watch

RBA set to hike in 2023

With the latest lockdowns set to end next month, we expect the RBA to taper its bond purchases in February. We still expect wage growth to accelerate more rapidly than the Bank anticipates and stick to our forecast for the first rate hike in early-2023.

28 September 2021

Australia & New Zealand Economics Weekly

APRA to impose lending restrictions by mid-2022

While house prices have surged, household debt remains contained and lending standards remain sound overall. However, housing credit growth is set to accelerate and there are already signs that some households are borrowing too much. The upshot is that we now expect regulators to impose restrictions on debt-to-income ratios by the middle of next year.

24 September 2021
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