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Real incomes not plunging as sharply as elsewhere Japan’s GDP shrank slightly in Q1 as consumer spending was kept in check by the Omicron outbreak. In contrast to most other advanced economies, Japan’s GDP has therefore yet to surpass its pre-virus level. …
20th May 2022
Golden Week encouraging The strong rebound in mobility over Golden Week suggests that virus fears are waning for many consumers. After stay-at-home spring holiday periods in 2020 and 2021, last week finally saw a seasonal spike in mobility. (See Chart 1.) …
13th May 2022
High inflation print may spook consumers The rise in headline inflation to 2.5% in the Tokyo measure for April released today (see Chart 1) will be replicated in the nationwide data in two weeks’ time, lifting inflation above the 2% target for the first …
6th May 2022
BoJ ups the ante once again The Bank of Japan remained under pressure to defend its 10-year yield target this week and conducted fixed rate auctions offering to buy an unlimited amount of bonds every day. The amounts purchased in the auctions on Tuesday …
29th April 2022
BoJ intervenes again to cap 10-year yields With 10-year yields again at the ceiling of the BoJ’s 0±25bp target band, the Bank launched another fixed rate auction on Wednesday. Then, on Thursday, it announced consecutive fixed rate auctions for a total of …
22nd April 2022
Ban on Russian coal won’t lift energy prices Prime Minister Kishida’s decision last Friday to follow the EU in banning imports of Russian coal is unlikely to put much additional upwards pressure on Japanese energy prices. To be sure, Japan is the world’s …
14th April 2022
Yen could weaken further While part of the recent sharp weakening in the yen can be attributed to the recent deterioration in Japan’s terms of trade (see here ), we don’t think a rebound in the current account surplus will cause the yen to strengthen. …
8th April 2022
BoJ back in control for now The Bank of Japan’s Yield Curve Control framework had to battle for survival to an extent never seen since its launch in 2016. 10-year Japanese Government Bonds (JGBs) have fallen back to 0.20% today after briefly breaking the …
1st April 2022
Kishida considering fresh support measures After a brief fall, the price of Brent crude oil has jumped again over the past week and we expect to remain around current levels of US$120 per barrel across the second quarter. Meanwhile, Japan’s biggest …
25th March 2022
The final round? With most of the recent news flow in Japan focusing on external threats such as the war in Ukraine and lockdowns in China, it’s easy to forget that the virus situation at home remains the most important factor determining the shape of …
18th March 2022
High savings rate to cushion the blow The Ukraine war is dominating the headlines, but the virus is still the main threat to Japan’s economy. Revised data show that Q4 GDP didn’t rebound as sharply as initially reported, leaving output still 1.1% below …
11th March 2022
Governor Kuroda’s successor to be more hawkish PM Kishida’s decision to replace arch-dove Kataoka Goushi with centrist Takata Hajime from Okasan Securities at the Bank of Japan could create a slightly less dovish policy board. But it probably won’t make …
4th March 2022
Russia-Ukraine crisis highlights fossil fuel reliance The spike in energy prices following Russia’s invasion of Ukraine has highlighted just how reliant Japan still is on imported energy. Imported fossil fuels still made up 85% of Japan’s energy supply in …
25th February 2022
Services spending rapidly recovering The 1.3% q/q rise in Q4 GDP was a touch weaker than anticipated but left output just 0.2% below its Q4 2019 level, a similar performance to the euro-zone or the UK. Particularly encouraging was the marked rebound in …
18th February 2022
Bank readies artillery to defend yield target Expectations for a global monetary tightening cycle lifted 10-year Japanese government bond (JGB) yields to just three basis points shy of the top end of the Bank of Japan’s ±0.25% target range yesterday. (See …
11th February 2022
Signs Omicron wave about to break The 1% m/m falls in both retail sales values and industrial production in December point to Japan’s post-Delta rebound having lost some momentum heading into 2022. As Omicron cases surged in many of Japan’s main trading …
4th February 2022
Profit margins reach record-high Amidst all the negative news about soaring input prices, supply shortages and production disruptions from Omicron-related staff quarantine, it’s easy to overlook the fact that Japanese firms are in better shape than ever. …
28th January 2022
Sharp but short Omicron hit With Omicron cases rocketing to record highs, quasi-state-of-emergency declarations are coming thick and fast. Such measures began in 13 more prefectures today – Tokyo among them – and from early next week restrictions are set …
21st January 2022
Tokyo readies restrictions We think that Japan’s economy rebounded by 2.4% q/q last quarter and entered Q1 on a strong footing. The Economy Watchers Survey conducted in the second half of December rose to a 16-year high, while the Reuters …
14th January 2022
Supply problems still lingering The 7.2% m/m rebound in industrial production in November marked the largest rise in the 68-year history of the series. Nearly all of that increase was driven by a 44% m/m surge in motor vehicle output as supply disruptions …
7th January 2022
Handbrake off The November external trade data showed an impressive rebound in car exports, but they were still 14% below their 2019 level. (See Chart 1.) Indeed, the recovery has further to run. Despite briefly closing a couple of factories last week …
17th December 2021
New tax proposal may boost low-skilled pay While PM Kishida’s new plan to offer firms more generous tax deductions for raising wages isn’t a game changer, we think it may push some smaller companies into slightly more aggressive wage hikes. Finalised …
10th December 2021
Immunity to high inflation won’t wane While there are still far more questions than answers surrounding the new Omicron variant, in a worst-case scenario we think it would temporarily derail Japan’s economic recovery and cause underlying inflation to …
3rd December 2021
Mid-range chip production boost While the breakdown of PM Kishida’s new ¥31.6 trillion (6% of GDP) supplementary budget released today was dominated by measures already leaked to the media last week, it did reveal that only ¥22 trillion (4% of GDP) will …
26th November 2021
Large stimulus locks in strong rebound The stimulus unveiled today by PM Kishida’s new cabinet was broadly in line with expectations and should provide a meaningful boost to the recovery in consumer spending over the coming months. But some of the …
19th November 2021
Large stimulus set to be unveiled next week The latest survey data paint a mixed picture of the health of Japan’s consumers. While October’s Economy Watchers Survey was the strongest it has been since immediately before 2014’s sales tax hike, the Reuters …
12th November 2021
Kishida delving in the Abenomics playbook PM Kishida’s comfortable Lower House election victory on Sunday should enable him stay clear of the revolving door to the Prime Minister’s office for longer than the year his predecessor PM Suga managed. That …
5th November 2021
No more 8pm last orders The Bank of Japan revised down its near-term GDP growth forecasts in this week’s “Outlook” report, citing continued weakness in services consumption and supply shortages as the key factors. Indeed, while mobility has picked up as …
29th October 2021
Firms pulling in their horns in face of disruptions Following the huge plunge in car sales last month, the September trade figures corroborate that Japan’s carmakers have been hit hard by supply shortages. While exports of other products were broadly …
22nd October 2021
Ruling coalition set to win another majority PM Kishida dissolved the lower house yesterday for a 31 st October general election with his ruling coalition well placed to win a majority. In polls conducted since Kishida became PM, on average 44% have …
15th October 2021
Parts shortages severely denting car industry The huge fall in new car registrations to their second-lowest September level since 1968 suggests that supply shortages are starting to hamper goods consumption. According to our seasonally adjusted figures, …
8th October 2021
The August activity data suggest that Japan’s economy is still struggling to gain momentum. The 4.1% m/m plunge in retail sales was par for the course given the severe Delta wave. More worrying is the 3.2% m/m drop in industrial output coupled with a …
1st October 2021
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
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
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
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
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
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 …
20th 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
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
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
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 …
16th 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 …
9th 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
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
Round three coming to an end With almost all state of emergency declarations set to be lifted on Sunday, our forecast that GDP will only rise by 1.0% q/q next quarter is looking too pessimistic. The declarations will be lifted in nine of the ten …
18th June 2021
October-November vaccine target The revised Q1 GDP figures and April wage data released this week suggest the economy was a little more resilient than first appeared in the early part of this year. And the economy is looking increasingly well set for a …
11th June 2021
Consumption weak, but industry recovering The economic data released this week were mostly disappointing. For a start, retail sales volumes plunged by 4.8% m/m in April. That marked the largest drop since last year’s nationwide state of emergency and left …
4th June 2021
Could waning fourth wave give way to a fifth? Japan’s fourth wave of coronavirus has broken as cases have fallen sharply over the past couple of weeks. However, hospitalisations and deaths continue to touch record highs. (See Chart 1.) Indeed, PM Suga …
28th May 2021