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What does Kishida’s victory mean for Japan?

Incoming PM Kishida has provided mixed signals on fiscal policy, pledging a large near-term stimulus while retaining ambitious medium-term consolidation plans. Given that he blamed deregulation for widening inequality, structural reforms will move further down the agenda. Meanwhile, his stance on China is hawkish: it’s likely that he’ll push back against further integration and support decoupling.
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

States of emergency may end before LDP election

Reports this week that PM Suga is keen to end emergency declarations before leaving office on Wednesday are good for our view that output will rebound strongly to above pre-virus levels in Q4. Crucially, high vaccine coverage should ensure the lifting of most restrictions is permanent this time around. While the LDP leadership contest is set to be a close-run thing, Kono Taro remains the favourite. Were he to become PM, Mr Kono would be likely to distance himself from Abenomics and instead pursue an economic policy agenda more focused on deregulation and raising household incomes.

24 September 2021

Japan Data Response

Japan Consumer Prices (Aug. 2021)

Headline inflation stayed negative in August as a boost from Go To Travel base effects was offset by a major drag from fresh food inflation. But looking through one-off factors such as Go To and April’s mobile phone tariffs cuts, we think inflation will temporarily spike over the coming months due to upwards pressure on goods prices from continued supply shortages and the release of pent-up demand in the services sector in Q4.

24 September 2021

Japan Economics Update

Japan’s LNG shielded from Europe price spike for now

Japan’s reliance on fixed, long-term contracts for its natural gas supply should limit the impact on consumers of the recent surge in gas spot prices currently being felt most acutely across parts of Europe.

22 September 2021
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