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Japan Machinery Orders (Feb. 2022)

The sharp fall in machinery orders in February supports our view that business investment fell further in Q1 after a disappointing 2021. However, survey evidence and strong corporate profits point to firms ramping up capital spending later this year.
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

Japan Economics Weekly

Large current account surplus not a thing of the past

Surging import prices and depressed services exports have shrunk down Japan’s current account surplus to near zero over the past year. However, we expect a large surplus to return over the next couple of years as earnings from overseas assets rise and exports rise faster than imports which have been unusually strong relative to domestic demand. That may put some upwards pressure on the yen, but our view is that interest rate differentials rather than the terms of trade have recently been the key determinant of the exchange rate. And with the spread between US and Japanese yields to widen further, the yen may weaken further against the dollar.

8 April 2022

Japan Data Response

Japan Wages & Household Spending (Feb. 22)

Japanese wage growth strengthened in February and we think it will accelerate further over the coming months as overtime and bonus pay continue to recover. However, as the post-Omicron rebound wears off wage growth should settle at 1% which won’t be enough to ensure 2% inflation is sustained. Drop-In: The fallout from Europe’s energy war (6th April, 10:00 EDT/15:00 BST): Join our Europe and Commodities teams for a special briefing on Wednesday, 6th April about the structure of global energy markets and the outlook for the European and Russian economies. Register here

5 April 2022

Japan Economics Weekly

Investor rebellions getting harder for BoJ to put down

The Bank of Japan had to go to unprecedented lengths to push 10-year yields back down into its ±0.25% tolerance band this week. If this week’s rate of JGB purchases were sustained through April, the BoJ’s holdings would rise by a record ¥13 trillion this month. Keeping that rate going would see them own all outstanding JGBs by 2025. And given that one of the motivations for introducing Yield Curve Control was to keep yields low with smaller bond purchases, a prolonged conflict with JGB traders would likely end with the BoJ giving up its yield target. The resulting rise in yields probably wouldn’t impact private sector borrowing costs much, but it could restrain the government’s ability to loosen fiscal policy.  

1 April 2022
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