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Shrinking balance sheet won’t lead to tighter policy

While Omicron is likely to intensify input price pressures, most Japanese firms will continue to absorb those costs in their margins, ensuring inflation stays well below the Bank’s 2% target. And in contrast to the Fed, a gradual shrinking of the BoJ’s balance sheet won’t lift long-term yields in Japan. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.
Tom Learmouth Japan 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 Tom Learmouth

Japan Data Response

Japan Wages & Household Spending (Nov. 2021)

Wage growth fell to zero in November due a slump in bonus payments, but it should accelerate as the labour market tightens and the recent reopening feeds into a renewed recovery in overtime and bonus payments. Meanwhile, the small fall in household spending in November poses a slight downside risk to our view that consumer spending rebounded strongly in Q4.

7 January 2022

Japan Data Response

Japan Consumer Prices (Nov. 2021)

Headline inflation picked up in November due to another acceleration in energy inflation and a further rise in fresh food inflation. Underlying inflation remained weak, and while it will accelerate over the coming months it’s unlikely to break past +1.0% y/y.

24 December 2021

Japan Chart Book

Manufacturing rebound should continue into 2022

Q4 is shaping up to be strong in line with our forecast. Mobility data point to another sizeable rebound in consumer spending, and strong export data and optimistic firm forecasts suggest that industrial production has bounced back sharply. Full production reportedly resumed in the auto sector in December. And despite media reporting this week that Toyota is facing procurement delays for some chips, Japan’s premier carmaker is still expecting to produce 800,000 cars globally in January 2022 which would be 8% more than in January 2021. Provided auto suppliers inside Japan and abroad remain open through any Omicron waves, we expect manufacturing output to surpass its April peak early next year. We are assuming that PM Kishida won’t announce major domestic restrictions in response to any Omicron wave given early reports suggesting that the variant causes milder symptoms than Delta. All told, we think GDP will top up a 2.0% rebound in Q4 with a 1.3% q/q rise in Q1 2022 that would take it above its pre-pandemic level.

22 December 2021
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