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Activity data support our optimistic view The latest activity data are consistent with our above-consensus GDP forecasts. For a start, the 4.0% m/m rise in industrial output in September was stronger than most had anticipated and marked the fourth …
30th October 2020
Recovery may surprise to the upside The strong rise in industrial production in September is consistent with our view that Japan’s economy will rebound faster than most anticipate. Meanwhile, the unemployment rate was unchanged in September and may not …
We estimate that firms deferred around ¥17tn in tax and social security contributions during the state of emergency. Most of those deferrals will have to be paid back by mid-2021 but we suspect that the government will extend the deadline for struggling …
29th October 2020
The Bank of Japan today revised up its outlook for GDP growth for the next couple of years, reducing the already scant chances of additional easing even further. As widely anticipated, the Bank kept its short-term policy rate at -0.1% and its target for …
Recovery in consumption will slow in Q4 Retail sales were broadly unchanged in September, remaining a smidge below pre-virus levels in volumes terms. That’s consistent with our view that consumption rebounded strongly last quarter, although we think the …
Revising up our Q3 forecasts The Cabinet Office’s monthly measure of consumption released this week showed a substantial upward revision for July, indicating that the second wave of infections didn’t hit spending as much as first thought. The index also …
23rd October 2020
Recovery shifting into slower gear The composite PMI only edged up marginally in October, consistent with our view that the recovery will slow in the fourth quarter . The manufacturing PMI recorded the fifth consecutive improvement and climbed from 47.7 …
Japanese inflation to remain around zero Headline inflation dropped to zero September, and we think it be negative over the coming months before hovering around zero throughout most of next year. Headline CPI fell from +0.2% y/y to 0.0% y/y last month …
Recent court rulings clarifying the application of the government’s new “equal pay for equal work” law are unlikely to lead to higher labour costs for firms. Most firms already pay their irregular workers allowances for dependents as well as holiday and …
22nd October 2020
Bank set to lower GDP growth and inflation forecasts slightly Expansion in BoJ’s assets already very large by international comparison Bank is unlikely to announce additional easing The Bank of Japan may revise down its GDP growth and inflation forecasts …
21st October 2020
Exports to return to pre-virus levels by year-end Exports continued to rise at a strong pace in September and we think they should return to pre-virus levels before the end of the year. By contrast, the recovery in imports has only just begun so net trade …
19th October 2020
Government mulling fresh fiscal support We explained last week that Japan is starting to lag behind other large advanced economies in terms of the fiscal support provided during the pandemic. The government duly responded. According to press reports, PM …
16th October 2020
Inflation has held up better than we had anticipated in recent months. The surge in spare capacity suggests that it could weaken more sharply as social distancing measures are relaxed. But we only expect underlying inflation average -0.2% next year. One …
12th October 2020
FY 2021 budget looks timid We published our Q4 Outlook this week, where we explain that Japan’s economy is on course to recover to its pre-crisis level at a similar pace to the US but much quicker than is likely in the euro-zone. This is largely because …
9th October 2020
Overview – Japan’s success in containing the virus without imposing draconian restrictions on activity should enable a faster return to pre-virus levels of output than in many major economies. We expect GDP to rise by 3.5% next year, after this year’s …
8th October 2020
Nationalisation over deregulation One of Prime Minister Suga’s central pledges on the campaign trail was that he would lower mobile phone tariffs. This week’s announcement by state-owned Nippon Telegraph & Telephone that it will delist its mobile phone …
2nd October 2020
Unemployment rate might not reach 4% The unemployment rate edged up again in August and it will undoubtedly rise further over the coming months. But with the jobless rate only creeping higher in recent months, our forecast for it to reach 4% by year-end …
Recovery set to be slow going The rebound in the Q3 Tankan fell short of expectations and suggests that the recovery could be protracted. And while the survey indicates that the labour market will soon turn the corner, firms’ capital spending plans point …
1st October 2020
Recovery in activity to continue Retail sales rebounded back to pre-virus levels in August as the second wave began to dissipate, and we expect consumer spending to recover further over the coming months. Meanwhile, industrial production edged higher in …
30th September 2020
Back to normal? The 4.1% m/m fall in private consumption in July announced by the Cabinet Office this week suggests that the second wave of coronavirus infections prompted consumers to curtail spending. But with that wave now over and mobility surging …
25th September 2020
Recovery to continue despite stagnation in PMIs The September flash PMIs didn’t improve much further even as Japan’s second virus wave has abated. Nevertheless, the survey points to a continued pick-up in consumption, exports and industrial output. The …
23rd September 2020
First new Prime Minister since 2012 Despite its similarity to PM Abe’s cabinet – which faced mounting disapproval – public support for PM Suga’s new cabinet has surged. Suga Yoshihide became PM on Wednesday having won a landslide victory in the LDP …
18th September 2020
Underlying inflation to weaken much further While headline inflation fell in August, excluding the government’s domestic travel subsidy scheme it showed a renewed pick up. However, we still think inflation will fall much further into negative territory …
The government has issued ¥95tn in government securities since the start of the current fiscal year in April, equivalent to a huge 17% of pre-virus GDP. It intends to issue another ¥35tn by March 20201. (See Chart 1.) Most of those funds have been issued …
17th September 2020
The Bank of Japan’s decision to keep policy settings unchanged today didn’t come as a surprise and we don’t expect incoming PM Suga to push the Bank into policy rate cuts. The Bank kept its policy rate at -0.1% and its target for 10-year government bond …
Huge boost to GDP growth from net trade in Q3 Exports continued to recover in August while import volumes fell. Indeed, we expect net trade to provide a sizeable boost to growth this quarter following a huge drag in Q2. The 14.8% annual fall in export …
16th September 2020
Japan’s incoming Prime Minister Suga Yoshihide has said he will “inherit Abenomics” and has been keen to emphasise that not much will change. As such, a major shift in economic policy is not on the cards. However, there are some apparent differences in …
15th September 2020
Outlook for business investment not great The second estimate of Q2 GDP released this week was broadly in line with the preliminary estimate. However, the Cabinet Office now estimates that business investment plunged by 4.7% q/q instead of the previous …
11th September 2020
Business investment hasn’t bottomed out yet While machinery orders rose in July we still expect non-residential investment to weaken further in Q3. And with business sentiment set to remain weak for the forseeable future, any rebound in business …
10th September 2020
Bank will stay the course at upcoming meeting Likely future PM Suga has indicated that he sees scope for interest rate cuts But recent comments suggest he won’t interfere in monetary policy decisions The Bank of Japan will leave policy settings unchanged …
9th September 2020
Rebound in household incomes to continue Wage growth improved in July and household incomes are likely to rebound further as more workers who lost their jobs during the state of emergency find employment again. Meanwhile, the second estimate of Q2 GDP …
8th September 2020
Suga favouring more monetary easing Chief Cabinet Secretary Yoshihide Suga has secured the backing of a majority of LDP lawmakers and is widely expected to win the party’s leadership election on 14 th September. That means he would become Japan’s next …
4th September 2020
Japan will very soon have a new Prime Minister. Close Abe aide Suga Yoshihide is the current front runner in the LDP leadership contest and would likely keep policy firmly on the course set by Mr Abe. But even if Abe critic Ishiba Shigeru were to win, we …
1st September 2020
Unemployment rate to hit 4% The unemployment rate edged higher in July, and we expect it to rise further over the coming months despite a continued recovery in economic activity. Meanwhile, the further fall in the number of furloughed workers supports our …
The Bank of Japan’s recent purchases of Treasury Bills have yet to feed through into the money supply as the government’s deposit account at the Bank has ballooned. That will provide a further boost to the money holdings of households and firms but we …
31st August 2020
Activity will recover further in second half of year While retail sales fell in July, consumer spending should continue to recover over the coming months. Meanwhile, industrial production rose sharply in July and should also rebound further. The 3.3% m/m …
LDP to remain in charge After racking up a record number of consecutive days as Prime Minister on Monday, Mr Abe announced today that he will step down due to health concerns. A chronic bowel condition already forced Abe to cut short his first term as PM …
28th August 2020
The slump in underlying inflation in Tokyo in August was mostly driven by subsidies to domestic travel as part of the Go To travel campaign. But even when we strip out the impact of those subsidies, underlying inflation has now started to slow and we …
Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
27th August 2020
Net trade to provide large boost to Q3 GDP The 7.8% q/q plunge in GDP in Q2 wiped out all the gains since PM Abe returned to power in 2012, but timelier data suggest that a strong rebound is now underway. The 7.4% m/m rise in export volumes in July was …
21st August 2020
Economy to pick up again over the coming months The stagnation in Japan’s composite PMI in August is consistent with our view that the second virus wave has brought the recovery to a standstill but won’t cause a renewed downturn . According to today’s …
Underlying inflation to turn negative Inflation excluding fresh food and energy was just over zero in July and we think it won’t be long before it turns negative. We expect sluggish demand to overwhelm the impact of social distancing measures. The pick-up …
Net trade to boost growth in Q3 The July trade data are consistent with our view that net exports will provide a large boost to Q3 GDP growth. However, the fall in machinery orders to a seven-year low bodes ill for business investment The 19.2% annual …
19th August 2020
The money supply has recently been growing at the fastest rate in at least two decades, boosted by government giveaways and generous lending to non-financial firms. However, the expansion in the monetary aggregates falls short of the rates seen in other …
18th August 2020
Japan to recover faster than most Despite its less severe restrictions on activity, Japan’s economy was hit just as hard by the virus in Q2 as many other large economies. However, we think GDP will converge to its pre-virus path rather quickly. According …
17th August 2020
Is the second wave breaking? While it’s too early to jump to any firm conclusions, the slowing spread of the virus over the past week lends support to our view that the economy will be able to rebound strongly in the second half of the year. But with the …
14th August 2020
Despite the reintroduction of states of emergency in some prefectures, and renewed calls for jishuku (“self-restraint”) in many others, the steps taken by local authorities to curb the “second wave” of coronavirus cases have so far been tentative and …
13th August 2020
More containment measures, but still a light touch Over the past few days, three of Japan’s 47 prefectures have reintroduced states of emergency to curb the spread of the coronavirus. And with some other local authorities also rolling out fresh …
7th August 2020
Household incomes should continue to rebound Wage growth improved a little in June and household incomes are rebounding now that most furloughed workers are back in work. Meanwhile, the surge “core” household spending in June supports our view that …
The second virus wave that is hitting Japan supports our view that Japan’s economy will contract more sharply this year than most anticipate. However, a renewed state of emergency would probably not be as economically damaging as the one declared in April …
3rd August 2020
