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Prolonged border closure could lift labour costs

With economic activity still depressed by recurrent virus waves, the sharp slowdown in immigration to Japan has yet to put much upwards pressure on wages. However, looking ahead we think some sectors could be hit by a rise in labour costs if the border remains closed to new entrants across most of 2022.
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 Data Response

Japan Wages & Household Spending (Dec. 2021)

Wage growth turned negative in December due to another fall in end-of-year bonus payments, but it should soon bounce back above 1% y/y this year as the labour market tightens and strong corporate profits feed into a recovery in bonuses. Meanwhile, the fall in household spending in December is largely old news as it comes after the release of strong consumption data for December from the BoJ.

8 February 2022

Japan Economics Weekly

Economy back in recovery mode next month

Omicron disruption to supply chains was already holding back industrial production in some sectors in December. And with domestic cases surging since then the recovery will have gone into reverse at the start of Q1. But while next week the government will probably extend its light-touch restrictions to the end of February, signs that the virus wave is now nearing a peak support our view that Japan’s economy will quickly shake off its Omicron setback and surpass its pre-sales tax hike level later this year.  

4 February 2022

Japan Data Response

Japan Retail Sales & Industrial Production (Dec. 2021)

The small fall in both retail sales and industrial production in December suggests that the post-Delta rebound was losing steam before local Omicron cases started to surge. And while output is still set to have rebounded strongly last quarter, we think Omicron disruption will cause the economy to only tread water this quarter.

31 January 2022
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