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Another disappointing quarter

Strong activity data for June confirm that the economy entered Q3 on a relatively strong footing. But while vaccinations are limiting the number of severe cases and deaths, daily coronavirus cases have surged beyond previous peaks in the Greater Tokyo area this week. That’s prompted the government to expand Tokyo’s state of emergency declaration to the surrounding prefectures and Osaka. As such, the recovery in consumer spending will probably be knocked back yet again in August. We’re revising down our Q3 forecasts and pushing more of the rebound into Q4 and 2022.
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 Data Response

Labour Market, Ind. Production & Retail Sales (Jun. 21)

Retail sales, industrial production and employment all rebounded strongly in June, pointing to a sizeable recovery in activity in between the Alpha- and Delta-driven coronavirus waves. That supports our view that the economy just about avoided a contraction in Q2 and entered Q3 on a stronger footing.

30 July 2021

Japan Economics Update

Short-lived spike in underlying inflation on the cards

The surge in input prices caused by supply shortages is starting to show signs of filtering through into higher output prices. Combined with upwards pressure on services inflation from a “vaccine bounce” later in the year, we now expect underlying inflation to rise but only temporarily to a peak of around 1.0% y/y.

29 July 2021

Japan Economics Weekly

A coronavirus wave for each Olympic ring

While consumption remains a weak link, robust exports and capital spending in Q2 may have helped the economy just about avoid a double-dip recession. And while Japan will be in the midst of a fifth wave of coronavirus during the Tokyo Olympics which formally begin this evening, we still expect GDP to recover further in Q3. Economic activity is holding up well so far and the fast-moving vaccine rollout should allow restrictions to be eased towards the end of the quarter.

23 July 2021
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