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Rapid manufacturing rebound, boosters, yen forecast

The rapid recovery in car exports in November probably has further to run and continued strength into next year poses upside risks to our forecast for a cumulative 3.3% rise in Japanese exports across Q4 and Q1 2022. However, the global spread of Omicron remains a downside risk to the recovery. If Omicron does take hold soon and proves to be more severe than early reports suggest, we doubt Japan's booster rollout will have made enough progress to change the maths much on government containment measures. Elsewhere, on the back of our more hawkish Fed view, we are now forecasting a weakening in the yen to 122 against the dollar by end-2023. – This will be the last Economics Weekly for 2021. The next Weekly will be sent on Friday 7th Jan. 2022 –
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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The implications of an escalating Taiwan crisis

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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.

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More from Tom Learmouth

Japan Data Response

Japan External Trade (Nov. 2021)

The jump in exports in November suggests that most supply chain constraints in the automobile sector had already eased last month. We think that exports will remain strong over the coming months as motor vehicle exports recover further and external demand for capital goods continues to rise. Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.

16 December 2021

Japan Economics Weekly

Wage-boosting tax breaks, Toyota setback

The government’s new plan to offer firms more generous tax deductions for raising wages is unlikely to lift wage growth to 3% as targeted by PM Kishida. But with smaller firms being offered corporate tax credits as high as 40%, we think the new measures may entice some firms into bigger wage hikes against a backdrop of tougher hiring conditions over the next few years. Meanwhile, renewed supply chain disruption in Vietnam – where daily cases are back at record highs – is a downside risk to our upbeat outlook for Japanese car production.

10 December 2021

Bank of Japan Watch

BoJ to extend Covid aid, won’t lose control of yields

While renewed virus restrictions are unlikely to be deflationary, we think Omicron fears will prompt the Bank of Japan to err on the side of caution and extend its emergency corporate funding measures to the end of September. Meanwhile, we disagree with the argument that 10-year JGB yields may spike past +0.25% if inflation surprises to the upside.

9 December 2021
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