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Third wave may weigh on consumer spending Retail sales rose in October, but as both values and volumes are now above pre-virus levels they’re unlikely to rise much further and could edge down amidst the third wave. Meanwhile, industrial production rose …
30th November 2020
Olympics unlikely to boost recovery While daily cases have showed signs of levelling off in virus hotspots such as Tokyo and Hokkaido in recent days, the third wave is increasingly likely to weigh on economic activity over the near term. The number of …
27th November 2020
We now assume that one or more COVID-19 vaccines will be widely available in Japan next year, which suggests that the drag on activity from voluntary social distancing will come to an end. That should give a boost to GDP of around 1% spread over the next …
26th November 2020
Restaurant discounts boosted recovery… Output recovered just over half of its H1 plunge last quarter and the economy has got off to a strong start in Q4. The onus is on services consumption to recover most of the remaining half. Despite a 6.6% q/q rise in …
20th November 2020
PMI still consistent with rebound in activity While the decline in the composite PMI could be an early sign that the third wave is resulting in a renewed drop in activity, the survey still points to a further rebound in industrial output and consumption. …
Core inflation unlikely to weaken much further Headline inflation fell sharply in October due largely to last year’s sales tax hike dropping out of the annual comparison, and we think it will weaken slightly further before recovering early next year. …
Given that Japan doesn’t have existing free trade agreements with either China or Korea, it is set to benefit more than other participants from the recently signed RCEP deal. However, tariffs will only be lowered gradually so the impact on GDP growth will …
18th November 2020
Boost from net trade to fade Although export volumes returned to pre-virus levels in October, import volumes bounced back more strongly. That supports our view that the boost to growth from net trade will now fade. The 0.2% annual fall in export values in …
Japan is in the midst of a third wave of COVID-19. Daily infections have already reached their previous early-August peak. (See Chart 1.) Only the Hokkaido Government has responded with countermeasures so far, asking Sapporo residents to consider …
17th November 2020
Strong rebound in output should continue Output rose sharply in the third quarter and should recover further this quarter provided the third wave of coronavirus infections doesn’t spiral out of control. According to today’s preliminary estimate, GDP rose …
16th November 2020
We think that inflation in Japan will remain subdued while the pandemic will result in a rise in US inflation to above the pre-virus pace. With both the Bank of Japan and Fed likely to remain inactive for some time, the resulting real interest rate …
13th November 2020
Vaccine could be available in first half of 2021 The Nikkei 225 hit a 29-year high this week. This was primarily a spillover from the surge in US stocks as it became clear that the election had returned a divided Congress. That will prevent US …
12th November 2020
Recovery in business investment unlikely until next year Machinery orders fell in September and we expect non-residential investment to have weakened last quarter and to be flat across Q4. Further ahead, we think business investment will be weak link in …
Rapid recovery set to continue The further surge in the Economy Watcher’s Survey (EWS) in October suggests that Q4 could surprise to the upside. However, further ahead the recovery will slow as the economy gets closer to pre-virus levels. The rise in …
10th November 2020
October looking good Japan’s economy has been performing well over the autumn months. Indeed, the early evidence points to a further recovery in economic activity having taken place in October. New car registrations surged 22% m/m last month and were …
6th November 2020
Household incomes should rebound further Wage growth improved in September and should recover further over the coming months as overtime hours continue to rebound – besides a hit from a fall in end-of-year bonus payments. Meanwhile, the rise in “core” …
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 …
