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Corporate tax shakeup, Shanghai parts shortages

The government aims to lift the standard corporate tax rate while providing more generous tax breaks for capital spending. We doubt this will have a noticeable impact on business investment, not least because firms have found ways to circumvent corporate taxes in recent years. Meanwhile, Japan’s car sector continues to be afflicted by supply shortages, this time as a result of the lockdowns in China. We suspect that shortages won’t fully disappear until the end of the year.
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 Chart Book

Tweak to Yield Curve Control still on the table

The Bank of Japan’s attempt to relieve pressure on the Yield Curve Control framework by offering to buy an unlimited amount of 10-year Japanese government bonds (JGBs) at yields of 0.25% for as long as necessary appears to have done the trick so far. Despite offering to do so every working day, the Bank hasn’t yet had to buy any bonds through the fixed rate method in May. The Bank’s latest confidence trick – along with the recent fall in global yields – has dissuaded the bond vigilantes for now. However, we think that the Bank will have to defend its ceiling with heavy purchases once again if – as we expect – US Treasury yields start rising again. And media reports suggests that some of the public are pinning blame on the BoJ for rising prices stemming from a weaker yen. As such, there’s still a good chance that the BoJ will ultimately decide to relieve pressure by widening its tolerance band on 10-year yields from the current ±0.25% to ±0.50% later this year.

23 May 2022

Japan Data Response

Japan External Trade (Apr. 2022)

Export volumes fell in April, and they are likely to remain subdued over the coming months until supply shortages dissipate and allow exporters to make up for lost ground.

19 May 2022

Japan Data Response

Japan GDP (Q1 2022 Preliminary)

Japan’s economy only contracted slightly in Q1 as consumption held up well despite prolonged restrictions during the Omicron wave. But while the economy will bounce back this quarter, we think Japan’s delayed reopening recovery will look weak when stacked up against the reopening rebounds in other advanced economies last year.

18 May 2022
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