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Japan Wages & Household Spending (Nov. 2021)

Wage growth fell to zero in November due a slump in bonus payments, but it should accelerate as the labour market tightens and the recent reopening feeds into a renewed recovery in overtime and bonus payments. Meanwhile, the small fall in household spending in November poses a slight downside risk to our view that consumer spending rebounded strongly in Q4.
Tom Learmouth Japan Economist
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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

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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

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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 Data Response

Japan Consumer Prices (Nov. 2021)

Headline inflation picked up in November due to another acceleration in energy inflation and a further rise in fresh food inflation. Underlying inflation remained weak, and while it will accelerate over the coming months it’s unlikely to break past +1.0% y/y.

24 December 2021

Japan Chart Book

Manufacturing rebound should continue into 2022

Q4 is shaping up to be strong in line with our forecast. Mobility data point to another sizeable rebound in consumer spending, and strong export data and optimistic firm forecasts suggest that industrial production has bounced back sharply. Full production reportedly resumed in the auto sector in December. And despite media reporting this week that Toyota is facing procurement delays for some chips, Japan’s premier carmaker is still expecting to produce 800,000 cars globally in January 2022 which would be 8% more than in January 2021. Provided auto suppliers inside Japan and abroad remain open through any Omicron waves, we expect manufacturing output to surpass its April peak early next year. We are assuming that PM Kishida won’t announce major domestic restrictions in response to any Omicron wave given early reports suggesting that the variant causes milder symptoms than Delta. All told, we think GDP will top up a 2.0% rebound in Q4 with a 1.3% q/q rise in Q1 2022 that would take it above its pre-pandemic level.

22 December 2021

Japan Economics Weekly

Rapid manufacturing rebound, boosters, yen forecast

The rapid recovery in car exports in November probably has further to run and continued strength into next year poses upside risks to our forecast for a cumulative 3.3% rise in Japanese exports across Q4 and Q1 2022. However, the global spread of Omicron remains a downside risk to the recovery. If Omicron does take hold soon and proves to be more severe than early reports suggest, we doubt Japan's booster rollout will have made enough progress to change the maths much on government containment measures. Elsewhere, on the back of our more hawkish Fed view, we are now forecasting a weakening in the yen to 122 against the dollar by end-2023. – This will be the last Economics Weekly for 2021. The next Weekly will be sent on Friday 7th Jan. 2022 –

17 December 2021
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