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Government seeks to revive soggy chip industry

The breakdown of PM Kishida’s new supplementary budget released today showed that ¥600 billion has been allocated to reviving semiconductor manufacturing in Japan. The centrepiece of the plan is a new TSMC factory in Kumamoto Prefecture that will produce the mid-range chips critical for car production. Given recent supply disruptions caused by chip shortages, beefing up local production makes strategic sense. We think the government’s new interventionist approach to stimulating mid-range chip production may succeed, but plans to make inroads into high-range chip production are likely to fall flat.
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

Stimulus package large but smaller than reported

The stimulus unveiled today by PM Kishida’s new cabinet was broadly in line with expectations despite inflated headline figures quoted in media reports which we think are padded with loans and recycled funds. There was a case for the package to focus on long-term structural goals such as digitalisation and decarbonisation, as last year’s third supplementary budget did. But instead the new stimulus is geared towards propping up households and business with handouts. While that will give a boost to consumption, spending would be on course for a strong rebound in Q4 and Q1 even without any fiscal handouts. Despite today’s large package, unveiled spending this year is only around half of the spending announced in 2020. But given that government spending will still be far higher than 2019 levels this year, we’d still characterise fiscal policy as expansionary.

19 November 2021

Japan Data Response

Japan Consumer Prices (Oct. 2021)

Headline inflation edged down in October despite an acceleration in energy inflation. Hit yet again by weaker mobile phone tariff inflation underlying inflation weakened further into negative territory. We think underlying inflation will pick up over the coming months but only to a peak of around +1% y/y.

19 November 2021

Japan Chart Book

Automobile sector set for swift rebound

While October’s trade data showed good exports still depressed by the recent collapse in domestic car production, there is growing anecdotal evidence that the auto sector is on the cusp of a rapid rebound. Toyota said that its global production in October was still 40% below normal, the same shortfall as in September. But production this month is likely to be only 15% below normal and higher than in the same month last year. In December, the company expects to produce a record one million cars globally, up 30% y/y in a bid to make up for lost ground. Nissan has similarly announced that it is ramping up production as supply shortages are dissipating fast. And Honda said today that it expects normal production to resume next month. Between them, these three firms account for more than half of vehicle sales in Japan. The collapse in domestic car production was caused by shortages of components from suppliers in Vietnam and elsewhere in Southeast Asia. But those suppliers’ factories are now getting back to full capacity. As such, most of Japan’s fall in goods exports and the sharp drop in durables consumption last quarter should reverse in Q4. Add in a sharp rebound in services spending due to the easing of domestic restrictions and GDP should rise by around 2.0% q/q this quarter after falling 0.8% q/q in Q3.

18 November 2021
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