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Light at the end of the tunnel

High frequency data suggest that the Delta wave resulted in a renewed weakening in consumer spending in recent weeks. And given that the government this week extended the state of emergency in the largest prefectures to end-September, we’ve pencilled in a drop in consumption across Q3. However, new virus cases are now plunging, which should ease pressure on the medical system. What’s more, nearly half of the population is now fully vaccinated and the government indicated that it will ease restrictions by November even in prefectures under a state of emergency. The upshot is that consumption should rebound strongly in Q4.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Japan Economics Weekly

Virus fears waning, Bank of Japan plans could change

We doubt that the spike in mobility during Golden Week is a harbinger of a rapid rebound in consumer spending. Mounting concerns about rising living costs and lingering virus fears among the elderly will keep the savings rate well above pre-virus levels. Meanwhile, the Bank of Japan this week ruled out widening the tolerance band around its 10-year yield target. However, markets remain unconvinced as yields continue to trade close to the ceiling of the band. We still expect the Bank to come under renewed pressure to defend the target, eventually forcing it to widen the tolerance band.  

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The hit to household incomes from higher inflation will be much smaller in Japan than elsewhere and consumers have plenty of pandemic forced savings to tap into to sustain spending. But we nonetheless expect the rebound in consumption to disappoint over the coming months as consumers are spooked by rare price hikes to everyday items and some remain wary of catching the virus. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

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Japan Labour Cash Earnings (Mar. 22)

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More from Marcel Thieliant

Australia & New Zealand Economics Update

RBA may only hike in 2023

While the RBA pressed ahead with tapering its asset purchases today, the financial markets are too optimistic in pricing in rate hikes as soon as next year.

7 September 2021

Japan Economics Weekly

Race for next PM wide open after Suga’s resignation

The resignation of Prime Minister Suga could mark a return to the tradition of short-lived leaders that characterised Japan’s political system before Abenomics. Even so, the ruling LDP-Komeito coalition is still likely to win the Lower House election due by end-November and the new PM will probably keep fiscal policy very loose.

3 September 2021

RBA Watch

RBA to stay the course

The health situation in Australia continues to deteriorate, but the acceleration in the vaccine rollout means that lockdowns probably won’t last much longer. The Bank doesn’t believe that stepping up its asset purchases will provide much help and we expect it to stick to its plan of tapering its asset purchases to $4bn at the upcoming meeting.

1 September 2021
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