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Japan Flash PMIs (Mar. 2022)

The March flash manufacturing PMI suggests that the war in Ukraine has intensified supply chain disruption for firms. By contrast, activity in the services sector bounced back and should continue to recover over the coming months. Commodities Drop-In (24 March, 11:00 EDT/15:00 GMT): Our Commodities team will be exploring how the war in Ukraine is shaking up commodity markets, from oil to wheat, while tackling some of the big market questions – not least whether we’re in for 1970s-style oil supply shocks. Register here.
Tom Learmouth Japan Economist
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More from Japan

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

Japan Chart Book

Tightening would require wage growth of at least 2%

Governor Kuroda admitted last week that inflation could hit the Bank of Japan’s 2% target in April but stressed that “that in no way signifies there will be a revision of our current monetary policy”. Even if rising import costs cause inflation to overshoot 2% as we expect, a rate hike is off the table while domestic price pressures are non-existent. The Bank has repeatedly emphasised that it would need to see a significant pick-up in wage growth before there can be any talk of tightening. To be sure, our preferred measure of wages based on a continuous sample of firms currently shows base pay growth above its pre-pandemic average at 1% y/y. But while weak productivity growth in Japan probably ensures that wage growth is transmitted more directly to inflation than in other advanced economies, we think wage growth would still have to settle at least at 2% for a rate hike to be discussed. Even as the unemployment rate gets back at its pre-virus level of 2.4% by next year, we don’t expect that to be enough to lift wage growth any higher than an annual rate of 1%. Shielded by the lifetime employment system and weak unions, firms aren’t likely to come under any pressure to substantially increase their wage bill. Long Run Outlook Drop-In (23 March, 11:00 EDT/15:00 GMT): What will be the lasting impacts of the war in Ukraine? What legacies will the pandemic leave? What does a future of higher inflation mean for economies and markets? Neil Shearing hosts this special discussion with senior economists about the long-term investing outlook on Wednesday. Register here.

21 March 2022

Japan Economics Weekly

Supply chain disruption could take the gloss off Q2

All domestic restrictions will be removed on Monday after two-and-a-half months of quasi-states of emergency covering most of the economy. Our assumption is that Japan – as PM Kishida hopes – will now move “towards normal times” as future virus waves shouldn’t require significant containment measures. But the emergence of a more infectious or more deadly variant of concern is a major risk to our forecast. And given Japanese automakers’ dependence on China for components, potential supply chain disruption caused by lockdowns there is also a downside risk. Meanwhile, the fall in the price of Brent crude oil to $100-110bp this week suggests that inflation may only touch, rather than surpass, 2% this year.

18 March 2022

Japan Data Response

Japan Consumer Prices (Feb. 2022)

Inflation picked up in February due to another jump in utilities inflation and a strong rise in fresh food inflation. We think headline inflation will rise above 2% in April as some of the spike in energy prices due to the war in Ukraine comes through and most of the hit from mobile phone tariff cuts drops out of the annual comparison. Bank of Japan Drop-In (18 March, 16:00 SGT/08:00 GMT): What will the BoJ do if/when Japan’s CPI hits 2%? Join our Japan and Markets economists after the BoJ’s March meeting for a discussion about the inflation outlook, the policy response and what it all means for market. Register here.

18 March 2022
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