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BoJ may get less dovish, GDP to fall in Q1

PM Kishida’s two new Bank of Japan policy board nominations could push the Bank in a slightly less dovish direction, but it won’t make much difference to policy decisions over the next year. A more meaningful shift may come early next year if the Prime Minister opts to install a more hawkish BOJ leadership when Governor Kuroda and his deputy governors Amamiya and Wakatabe step down. But we expect inflation to fall well below target next year, so a policy rate hike probably won’t be on the table by then.  
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.

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More from Tom Learmouth

Japan Data Response

Japan Labour Market (Jan. 2022)

Employment fell back yet again in January after a strong rebound in December. But while employment might have fallen a bit further in February due to the Omicron wave, it should soon bounce back fast and push the unemployment rate down to 2.5% by the end of the year.

4 March 2022

Japan Data Response

Japan Retail Sales & Industrial Production (Jan. 2022)

The falls in both retail sales and industrial production in January confirm that the Omicron surge has knocked back the recovery. We think consumer spending will fall across this quarter, but it should rebound sharply in Q2.

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Fossil fuel reliance, Japanese banks in Russia

The recent spike in energy prices has highlighted just how reliant Japan still is on imported energy. Renewable energy production will need to be ramped up significantly to shield the economy from future energy price shocks, but the price of renewable energy in Japan is high and there remain major obstacles to a rapid rise in renewables capacity. And while Japanese financial stability won’t be threatened by the invasion of Ukraine, Japan’s Russian LNG imports from nearby Sakhalin could face disruption, though we still think power shortages are unlikely.

25 February 2022
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