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Labour Market & Industrial Production (Jul. 2021)

While the Delta wave may reverse some of July’s jump in employment, we think vaccines will allow employment to surpass its pre-virus level by the end of this year. Meanwhile, the fall in industrial production in July suggests that supply shortages remain a constraint for firms in certain sectors, though manufacturing output is still on course to rise across Q3.
Tom Learmouth Japan Economist
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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

Japan Economics Weekly

The rise and fall of Japan's energy imports

Japan is still struggling to wean itself off fossil fuels despite a new government push to boost solar power. However, the country has become more energy efficient over the past decade, which has helped the economy weather the impact of rising global energy prices. Meanwhile, the government has recommended a 3.3% rise in the minimum wage, the largest move on record. While overall wage growth would get a boost over the next year, we think it would still remain well below the 3.0% level the BoJ maintains is needed to sustain inflation above its 2.0% target  

5 August 2022

Japan Data Response

Japan Labour Cash Earnings (Jun. 22)

The jump in wage growth in June was mostly driven by a surge in summer bonus payments and the Bank of Japan’s 3% wage growth target will remain out of reach for a while yet. More positively, the strength in overtime hours suggests that Japan is finally learning to live with the virus.

5 August 2022

More from Tom Learmouth

Japan Economics Weekly

Delta may soon peak, Kishida seeks to replace Suga

The government this week expanded state of emergencies to nearly all prefectures and consumers are responding to the surge in virus cases with renewed caution. We’ve therefore pencilled in a renewed fall in consumer spending this quarter. However, there are early signs that the Delta wave is peaking in Tokyo and we still expect a strong rebound in consumption in Q4 as the majority of the population will be vaccinated by then. Meanwhile, former Minister of Foreign Affairs Kishida Fumio will run against PM Suga in next months’ LDP leadership election but his chances of winning are slim.

27 August 2021

Japan Economics Update

Consumer spending to fall across Q3

The latest high-frequency data point to the relentless surge in new coronavirus cases starting to weigh heavily on consumer activity this month. And with full-blown emergency declarations to be expanded to cover around 80% of Japan’s economy from Friday, we now expect consumer spending to fall across Q3 which should cause GDP to once again tread water.

26 August 2021

Japan Chart Book

Strong Q4 still on the cards

With daily cases surging to unprecedented levels and states of emergency extended to mid-September this week, there may not seem to be much light at the end of the tunnel for Japan’s economy. However, we’re cautiously optimistic that a strong recovery is just around the corner. Japan’s vaccine coverage is now not far off the rates seen in DMs where most domestic restrictions have already been “permanently” lifted. PM Suga outlined this week that he’s targeting getting 50% of the population fully vaccinated by the end of this month, and 60% by end-September. The vaccine rollout has progressed rapidly over the past couple of months and is broadly on track to meet those targets. The UK’s vaccination rate was only 53% when the last domestic restrictions were removed in England. Hospitalisations and deaths have remained contained in the UK despite daily cases peaking as high as 50,000-a-day. Even in Singapore – where virus containment measures have been far more heavy-handed than in Japan – domestic and border restrictions are being eased now that the vaccination rate has reached 70%. Japan should get to 70% by around late-October. Even if the Japanese government did wait until then to remove most domestic restrictions, it would still come in time for GDP to rebound strongly next quarter.

20 August 2021
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