Asia-Pacific

Japan

Labour Market & Industrial Production (Oct. 2021)

Employment fell sharply again in October despite the lifting of states of emergency declarations at the start of the month. However, it should rebound sharply across November and December in line with the revival in face-to-face service sector activity. And while industrial production only edged up in October, we think it too will rebound more strongly this month and next, potentially approaching its recent April peak in December.

30 November 2021

Japan Retail Sales (Oct. 2021)

Retail sales kept rising in October despite another drop in motor vehicles sales. With supply disruptions now starting to ease and mobility picking up, they should continue to increase.

29 November 2021

Government seeks to revive soggy chip industry

The breakdown of PM Kishida’s new supplementary budget released today showed that ¥600 billion has been allocated to reviving semiconductor manufacturing in Japan. The centrepiece of the plan is a new TSMC factory in Kumamoto Prefecture that will produce the mid-range chips critical for car production. Given recent supply disruptions caused by chip shortages, beefing up local production makes strategic sense. We think the government’s new interventionist approach to stimulating mid-range chip production may succeed, but plans to make inroads into high-range chip production are likely to fall flat.

26 November 2021
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Japan Flash PMIs (Nov. 2021)

November’s flash PMI points to a rebound in industrial output amidst early signs that supply shortages are diminishing. But while the services sector is now on the mend, the recovery there is lacking vigour.

Bank of Japan not losing control of money market

Media reports that suggest that the Bank of Japan is losing control of short-term interest rates due to its “Special Deposit Facility” encouraging banks to park reserves at the BoJ are wide of the mark. The scheme does not threaten the viability of the BoJ’s negative interest rate policy.

Stimulus package large but smaller than reported

The stimulus unveiled today by PM Kishida’s new cabinet was broadly in line with expectations despite inflated headline figures quoted in media reports which we think are padded with loans and recycled funds. There was a case for the package to focus on long-term structural goals such as digitalisation and decarbonisation, as last year’s third supplementary budget did. But instead the new stimulus is geared towards propping up households and business with handouts. While that will give a boost to consumption, spending would be on course for a strong rebound in Q4 and Q1 even without any fiscal handouts. Despite today’s large package, unveiled spending this year is only around half of the spending announced in 2020. But given that government spending will still be far higher than 2019 levels this year, we’d still characterise fiscal policy as expansionary.

Japan Consumer Prices (Oct. 2021)

Headline inflation edged down in October despite an acceleration in energy inflation. Hit yet again by weaker mobile phone tariff inflation underlying inflation weakened further into negative territory. We think underlying inflation will pick up over the coming months but only to a peak of around +1% y/y.

19 November 2021

Automobile sector set for swift rebound

While October’s trade data showed good exports still depressed by the recent collapse in domestic car production, there is growing anecdotal evidence that the auto sector is on the cusp of a rapid rebound. Toyota said that its global production in October was still 40% below normal, the same shortfall as in September. But production this month is likely to be only 15% below normal and higher than in the same month last year. In December, the company expects to produce a record one million cars globally, up 30% y/y in a bid to make up for lost ground. Nissan has similarly announced that it is ramping up production as supply shortages are dissipating fast. And Honda said today that it expects normal production to resume next month. Between them, these three firms account for more than half of vehicle sales in Japan. The collapse in domestic car production was caused by shortages of components from suppliers in Vietnam and elsewhere in Southeast Asia. But those suppliers’ factories are now getting back to full capacity. As such, most of Japan’s fall in goods exports and the sharp drop in durables consumption last quarter should reverse in Q4. Add in a sharp rebound in services spending due to the easing of domestic restrictions and GDP should rise by around 2.0% q/q this quarter after falling 0.8% q/q in Q3.

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