Nationwide state of emergency touch and go

Off the back of the weak Q1 GDP data, we now expect output to only rise 2% across 2021. The economy is unlikely to recover much in Q2 as cases are close to record highs and calls for a nationwide state of emergency growing. Moreover, only 4% of the population has received at least one dose of the vaccine so far. However, we still think there will be a strong recovery from mid-Q3. While distortions in the number of tests conducted during and since the Golden Week holiday period make it difficult to draw definitive conclusions, daily cases have been falling in recent days. Encouragingly, new infections have fallen sharply in Osaka and Hyogo since states of emergency were declared in those prefectures three weeks ago. As the first prefectures where the UK variant took hold, Osaka and Hyogo should be ahead of the nationwide curve. And the vaccine rollout is accelerating. A record 483,328 jabs were administered on Monday.
Tom Learmouth Japan Economist
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Japan Economics Weekly

Carmakers will struggle even after shortages abate

The disruptions to supply chains from Delta outbreaks across Southeast Asia that resulted in another big drop in car exports in September will ease soon. However, carmakers are responding with lower capital spending and are lagging their US and European counterparts in electric vehicle sales. The upshot is that the sector won’t return to former glory.

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Japan Data Response

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Headline inflation in September turned positive for the first time this year due to spikes in fresh food and energy inflation. As the drag from mobile phone tariffs fades in the first half of next year, underlying inflation will turn positive. However, we think it will struggle to break past 1%.

22 October 2021

Bank of Japan Watch

Bank to look through weaker yen and supply shortages

Sitting comfortably with continuity candidate PM Kishida in charge, the Bank of Japan won’t alter its major policy settings at its October meeting. And we doubt the Bank will respond with policy tweaks to the recent weakening in the yen, nor to continued supply chain disruptions.

21 October 2021

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Japan Data Response

Japan Wages & Household Spending (May 2021)

While the further acceleration in wage growth in May was again largely down to favourable base effects, we think wage growth will stay elevated as the labour market tightens and vaccines fuel a further recovery in overtime pay. Meanwhile, the only modest drop in household spending in May suggests that consumer spending may have edged up last quarter.

6 July 2021

Japan Data Response

Bank of Japan Tankan (Q2 2021)

The further rebound in the Q2 Tankan supports our view that the economy’s disappointing start to the year won’t prevent vaccines driving a strong rebound in the second half of the year. And firms’ upbeat capital spending plans bolster our view that business investment will soon recover sharply.

1 July 2021

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Transition to carbon neutral 2050 wouldn’t harm growth

Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to reach his goal of a carbon neutral 2050.

29 June 2021
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