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Japan Retail Sales & Industrial Production (Jan. 2022)

The falls in both retail sales and industrial production in January confirm that the Omicron surge has knocked back the recovery. We think consumer spending will fall across this quarter, but it should rebound sharply in Q2.
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

Fossil fuel reliance, Japanese banks in Russia

The recent spike in energy prices has highlighted just how reliant Japan still is on imported energy. Renewable energy production will need to be ramped up significantly to shield the economy from future energy price shocks, but the price of renewable energy in Japan is high and there remain major obstacles to a rapid rise in renewables capacity. And while Japanese financial stability won’t be threatened by the invasion of Ukraine, Japan’s Russian LNG imports from nearby Sakhalin could face disruption, though we still think power shortages are unlikely.

25 February 2022

Japan Economics Update

2% inflation if Russian energy flows disrupted

A spike in energy prices caused by significant disruption to Russian exports would lift Japanese inflation to 2% from April until the end of this year. However, the BoJ wouldn’t respond by lifting its policy rate as it wouldn’t be able to argue that inflation was overshooting its 2% target in a sustained manner.

23 February 2022

Japan Chart Book

Post-booster bounce in the spring

Services spending jumped to only 3% below its pre-virus level in Q4 2021 despite having begun the quarter on a weak footing with curfews still in place for bars and restaurants across many regions in October.  It will have been knocked back again this quarter by the Omicron surge and lackadaisical booster rollout – former-vaccine chief Kono Taro claims the initial rollout was so slow because he wasn’t there “to whip” the health ministry into action. But with daily cases now falling and the booster rollout finally hitting PM Kishida’s one-million-a-day target, services consumption is well set for a springy bounce next quarter that will pick up where Q4 left off. That may put services spending to within touching distance of pre-virus levels far earlier than most had expected before the release of the preliminary Q4 GDP data last week. And if – as we expect – the Go To Travel discounts are restarted next quarter, then that would give a further boost to the hard-hit face-to-face services sector.

21 February 2022
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