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Consumer Prices (Oct.)

The muted rise in inflation in October supports our view that the recent sales tax hike won’t derail consumer spending. And while underlying inflation should weaken further as spare capacity mounts, the Bank of Japan will probably keep interest rates unchanged.
Tom Learmouth Japan Economist
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Japan Economics Weekly

Demographic woes persist, tourists waiting at the gate

An exodus of long-term migrants contributed to the 0.6% fall in Japan’s population last year but with border controls loosened since March net migration is bouncing back strongly. Even so, we still see GDP growth settling around 0.5% over the longer-term as a shrinking workforce offsets productivity gains. Meanwhile, Japan remains a highly popular tourist destination and once the onerous procedural requirements for entry are lifted, probably sometime in Q4, tourist arrivals and spending should rebound strongly.

12 August 2022

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

More from Tom Learmouth

Bank of Japan Watch

Asset purchases to remain low but rates on hold

At its June meeting we think the Bank of Japan may extend the deadline on its emergency lending facility from September to December. Beyond that point, it should further taper its purchases of short-dated debt as it digs in for a prolonged hold.

11 June 2021

Japan Data Response

Japan Wages (Apr.) & GDP (Revised Q1 2021)

While the marked acceleration in wage growth in April was largely down to favourable base effects, we think wage growth will remain strong throughout this year as the labour market tightens and overtime hours recover further as vaccines allow the domestic economy to fully reopen. Meanwhile, the upward revision to Q1 GDP and further rise in working hours in April suggests that the economy may have been a little more resilient than many were expecting in the first half of the year.

8 June 2021

Japan Data Response

Japan Retail Sales & Industrial Production (Apr. 2021)

The sharp fall in retail sales and weaker than expected rise in industrial production in April suggests the economy was subdued even before states of emergency were declared, supporting our view that the economy won’t have rebounded from its weak Q1 this quarter.

31 May 2021
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