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Freedom may be PM Suga’s parting gift Local media reports suggest that PM Suga is eager to lift all state of emergency declarations before leaving office next week. That would be good for our view that the economy will stage a strong rebound back to …
24th September 2021
Services recovering, manufacturing struggling September’s flash PMIs suggest that while the services sector is bouncing back as the delta wave has ebbed, the manufacturing sector is suffering from weaker demand and mounting supply shortages . According to …
Inflation to peak at +1.0% y/y Headline inflation stayed negative in August as a boost from Go To Travel base effects was offset by a major drag from fresh food inflation. But looking through one-off factors such as Go To and April’s mobile phone tariffs …
Japan’s reliance on fixed, long-term contracts for its natural gas supply should limit the impact on consumers of the recent surge in gas spot prices currently being felt most acutely across parts of Europe. Japanese liquefied natural gas (LNG) importers …
22nd September 2021
The Bank of Japan left policy settings unchanged today and while a new Prime Minister could appoint a more hawkish BoJ Governor, we expect the Bank to keep interest rates unchanged for years. As universally anticipated, the Bank of Japan kept its interest …
There are good reasons to think that the natural stalling in globalisation underway won’t do much damage to Japanese manufacturers. And while an abrupt severing of supply chains between China on the one hand and the US and its allies on the other would be …
21st September 2021
The race to become the new LDP leader – and with it PM – formally began on Friday. With Delta cases plunging and the vaccination rate having caught up with many other advanced economies, whoever wins should be able to lift domestic restrictions and ride a …
20th September 2021
Japan will remain the inflation outlier We launched our CE Spotlight series on inflation this week and one of the key messages is that the inflation outlook is more nuanced than the current polarised debate suggests. For example, while inflation is now …
17th September 2021
LDP leadership favourite Kono Taro may set his sights on shrinking BoJ balance sheet Next PM likely to be involved in choosing Governor Kuroda’s successor Both short- and long-term policy rates won’t be touched any time soon Dug in for an extended hold, …
16th September 2021
Japan’s exports set to surpass pre-GFC peak before long Today’s trade figures suggest that export volumes kept rising and we think that Japan’s focus on cars and machinery means that they will hold up better than in other Asian economies . The 26.2% y/y …
Business investment to continue rapid recovery The rise in machinery orders in July and optimistic projections for August and September support our view that business investment will rise strongly again across Q3. And private investment should continue to …
15th September 2021
Delta wave breaking The Bank of Japan’s consumption activity index edged up by 0.5% m/m in July, driven by a 3.3% m/m rise in services consumption. However, services spending was still 5% below the peak in November, let alone the much higher levels that …
10th September 2021
Kono Taro is emerging as the favourite to succeed Mr Suga as PM. While Kishida and Takaichi are viewed as safer hands by LDP party elders, the outspoken Kono’s popularity with the public gives him the edge on the eve of a general election where the ruling …
8th September 2021
Wage growth to bounce back further Wage growth recovered in July and it should strengthen further over the coming months as the labour market tightens and vaccines fuel a further recovery in overtime pay. Meanwhile, the drop in household spending in July …
7th September 2021
By announcing that he will not run in the LDP leadership election on 29 th September, PM Suga has effectively resigned after just one year in office. That means he will not lead his party into the general election, which is due by end-November. While the …
3rd September 2021
Employment to return to pre-virus level by year-end While the Delta wave may reverse some of July’s jump in employment, we think vaccines will allow employment to surpass its pre-virus level by the end of this year. Meanwhile, the fall in industrial …
31st August 2021
Consumption will fall yet again in Q3 While retail sales recovered further in July, the high frequency data point to a renewed fall in August as the Delta wave intensified and we’ve pencilled in a 0.8% drop in private consumption in Q3 . According to …
30th August 2021
Fifth wave breaks in Tokyo With the government this week expanding its full- or quasi-emergency measures to over 90% of the economy, consumption looks set to fall in Q3. Timely data on convenience store sales and restaurant activity suggest that consumer …
27th August 2021
The latest high-frequency data point to the relentless surge in new coronavirus cases starting to weigh heavily on consumer activity this month. And with full-blown emergency declarations to be expanded to cover around 80% of Japan’s economy from Friday, …
26th August 2021
Services sector to recover as most seniors now vaccinated Today’s flash PMIs suggest that the worsening Delta outbreak may yet result in a fall in consumption this quarter. And with supply shortages intensifying, the manufacturing sector isn’t stepping …
23rd August 2021
With daily cases surging to unprecedented levels and states of emergency extended to mid-September this week, there may not seem to be much light at the end of the tunnel for Japan’s economy. However, we’re cautiously optimistic that a strong recovery is …
20th August 2021
Not all doom and gloom While output only edged higher in Q2 , the 0.8% q/q rise in private consumption was stronger than expected and is an encouraging sign that states of emergency are no longer a major drag on consumer spending. Most surprising was the …
Underlying inflation will continue to pickup While headline inflation rose in July due to a pickup in energy inflation, it’s far weaker than the figure initially reported for June due to the introduction of a new CPI basket this month knocking off 0.7%pts …
Japanese exports to outperform other Asian countries Japan’s export volumes stagnated in July but given that a large share of those exports are cars and capital goods, we think they will rise again over the coming months. The slowdown in the annual growth …
18th August 2021
Delta has delayed not cancelled vaccine bounce Output only edged higher in the second quarter and won’t do much better this quarter as the Delta-driven fifth wave holds back consumer spending. But with the vaccine rollout still moving fast, a strong …
16th August 2021
Delta puts PM on shaky ground The seven-day-average of cases in Tokyo has stabilised somewhat this week – a tentative early sign that the fifth wave may be peaking. (See Chart 1.) But even if a clear downward trend emerges, severe cases are likely to …
13th August 2021
Medical situation deteriorating again With the more contagious Delta variant now accounting for 90% of cases in Tokyo and 60% in the region around Osaka, the number of new infections hit record highs of over 10,000 this week. And as the number of …
6th August 2021
Wage growth set to recover again The weakness in wage growth in June reflected both a slowdown in regular pay and a drop in summer bonuses. But with the labour market set to tighten and corporate profits on the mend, we think that wage growth will rebound …
With the Delta variant lifting new infections to a record-high, calls for a “hard” lockdown are growing. If that happened, services activity would fall further but we doubt that the government would shut down industry. And with households and firms now …
2nd August 2021
Fifth wave the biggest yet While Japan is keeping pace with China and the US at top of the gold medal table at the Tokyo Olympics, it is losing ground to its rivals in the economic recovery rankings. Japan’s economy started this year closer to its …
30th July 2021
Activity to recover further despite Delta blip Retail sales, industrial production and employment all rebounded strongly in June, pointing to a sizeable recovery in activity in between the Alpha- and Delta-driven coronavirus waves. That supports our view …
The surge in input prices caused by supply shortages is starting to show signs of filtering through into higher output prices. Combined with upwards pressure on services inflation from a “vaccine bounce” later in the year, we now expect underlying …
29th July 2021
Services sector to recover as most seniors now vaccinated Today’s flash PMI suggests that the services sector was hit by Tokyo’s state of emergency but we still expect activity to recover towards the end of this quarter . The services PMI dropped from …
26th July 2021
Economic hit from fifth wave to be small With export volumes rising to a record high in June and machinery orders and capital goods shipments data pointing to a strong rebound in business investment in Q2, the economy may have just about avoided a …
23rd July 2021
While infections are now rising sharply nationwide – particularly in Tokyo where the Delta variant has the strongest hold – most of the vulnerable population are now fully vaccinated so we doubt restrictions will have to be tightened any further. …
22nd July 2021
Export tailwind weakening The rebound in exports showed further signs of slowing in June despite another high y/y growth rate caused by base effects. We think external demand will only provide a small tailwind to growth over the coming months as capital …
21st July 2021
The Bank of Japan today unveiled the details of its green lending facility, underlining that its focus is now moving away from addressing the pandemic towards longer-term structural issues . As universally anticipated, the Bank of Japan kept its interest …
16th July 2021
Fifth wave shouldn’t delay vaccine bounce While a delta-driven fifth wave has begun, we doubt restrictions will have be tightened much further and still expect them to be relaxed in late-Q3 once most adults are vaccinated. A state of emergency began in …
While new infections in Tokyo have picked up, the fourth state of emergency in the capital is partly a political move designed to placate fears that the Tokyo Olympics will trigger yet another virus wave. With the health situation in other prefectures …
12th July 2021
Security holdings may edge down as JGB purchases are tapered further Near term inflation forecasts to be revised up Climate change funds likely to be interest-free but impact will be small At its July meeting we expect the Bank of Japan to outline that it …
9th July 2021
There are signs that price pressures continue to strengthen. Producer prices of consumer goods are rising at a similar pace as they did at the peak in 2013 even though the yen has weakened far less sharply than it did then. The June manufacturing PMI …
Overview - Japan’s lagging vaccine rollout has finally reached cruising speed, which should allow a rapid recovery in activity over the second half of the year. The labour market may soon be as tight as it was before the pandemic, but we expect this …
7th July 2021
Strong wage growth on the horizon While the further acceleration in wage growth in May was again largely down to favourable base effects, we think wage growth will stay elevated as the labour market tightens and vaccines fuel a further recovery in …
6th July 2021
The economic data released this week were broadly consistent with our view that activity didn’t recover much in Q2. For a start, we estimate that retail sales volumes fell by another 1% m/m in May following the plunge in April, leaving them 5.3% below …
2nd July 2021
Strong recovery in H2 The further rebound in the Q2 Tankan supports our view that the economy’s disappointing start to the year won’t prevent vaccines driving a strong rebound in the second half of the year. And firms’ upbeat capital spending plans …
1st July 2021
Output to recover as car chip shortages ease The plunge in industrial output in May probably reflects chip shortages, but firms’ production forecasts point to a marked rebound over the coming months . The 5.9% m/m drop in industrial production was the …
30th June 2021
Achieving net zero emissions in Japan in three decades is a difficult but achievable task. And while the most carbon-intensive sectors may face significant headwinds, overall we agree with PM Suga that economic growth wouldn’t have to be sacrificed to …
29th June 2021
Spending and employment will soon bounce back While the further rise in the unemployment rate last month suggests on-off restrictions are taking their toll on the labour market, employment should bounce back strongly soon. Meanwhile, consumer spending …
Not all it was cracked up to be Media reports claiming that only around half of the funds raised in last year’s coronavirus stimulus packages have actually been spent support our view that government spending hasn’t been as big a prop to Japan’s economy …
25th June 2021
PM Suga unveiled his administration’s first mid- to long-term growth strategy – known as the “big-boned policy” – on Friday. While most themes have been carried over from the Abe administration, PM Suga’s economic strategy contains new angles such as a …
24th June 2021
