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Conditions for strong recovery finally in place

With the Delta wave having ebbed and the majority of the population now fully vaccinated, we expect a strong rebound in domestic demand over the coming months. But the inflation concerns that hang over other major developed economies won’t materialise and the Bank of Japan will keep policy loose for the foreseeable future.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Japan Economics Weekly

Virus fears waning, Bank of Japan plans could change

We doubt that the spike in mobility during Golden Week is a harbinger of a rapid rebound in consumer spending. Mounting concerns about rising living costs and lingering virus fears among the elderly will keep the savings rate well above pre-virus levels. Meanwhile, the Bank of Japan this week ruled out widening the tolerance band around its 10-year yield target. However, markets remain unconvinced as yields continue to trade close to the ceiling of the band. We still expect the Bank to come under renewed pressure to defend the target, eventually forcing it to widen the tolerance band.  

13 May 2022

Japan Economics Update

Large pot of pandemic savings to collect dust

The hit to household incomes from higher inflation will be much smaller in Japan than elsewhere and consumers have plenty of pandemic forced savings to tap into to sustain spending. But we nonetheless expect the rebound in consumption to disappoint over the coming months as consumers are spooked by rare price hikes to everyday items and some remain wary of catching the virus. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

11 May 2022

Japan Data Response

Japan Labour Cash Earnings (Mar. 22)

Nominal wage growth stayed at 1.2% in March and we think it could touch 2% over the coming months as overtime and bonus payments get back to their pre-virus levels. But with base pay growth still weak, we think overall wage growth will fall back to 1% before long. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

9 May 2022

More from Marcel Thieliant

Australia & New Zealand Economics Update

Australia- Sustained high inflation will prompt rate hikes in 2023

The RBA today stuck to its guns by predicting that rates won't rise until 2024, but our view that inflation will remain higher for longer means it will happen in early-2023 already.

5 October 2021

Australia & New Zealand Economics Weekly

Soaring food and energy prices to keep inflation high

The spike in rural commodity prices should spill over into higher food inflation before long. And while the impact of higher energy commodity prices is less clear cut, we think electricity inflation is also set to rise. That’s why we think headline inflation is set to ease less sharply than the RBA anticipates next year. Amid early signs that soaring consumer prices will result in stronger wage growth, we expect the RBA to hike rates in early 2023.

1 October 2021

Japan Economics Weekly

Supply shortages set to hold back manufacturers

Production of motor vehicles and electronics fell sharply in August and is well below pre-pandemic levels. This isn’t mainly due to weaker demand, which has moderated but remains healthy. Instead, it seems to be driven by mounting material shortages. Those shortages will probably persist for a while yet, posing a downside risk to our upbeat forecasts for 2022 GDP growth.

1 October 2021
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