Only light-touch restrictions on horizon for now

Japan is in the midst of a third wave of COVID-19. Daily infections have already reached their previous early-August peak. Only the Hokkaido Government has responded with countermeasures so far, asking Sapporo residents to consider refraining from non-essential, non-urgent outings from today until 27th November. We expect some other local governments to request curfews and to ask citizens to refrain from some non-essential travel over the coming days and weeks. The experience from the second wave suggests that this wouldn’t inflict too much harm on private consumption. A return to the voluntary lockdown that contributed to Q2’s deep contraction appears unlikely at this stage. Indeed, the chair of the government’s expert committee on the virus recently told the FT that Japan was determined to keep its economy open during a third wave. Admittedly, if coronavirus cases continue to rise and start to put strain on the healthcare system, then the government’s hand could be forced. But while that’s a downside risk, the prospect of effective vaccines being available early next year is an upside risk to our forecasts. As such, for now we’re sticking with our forecast for GDP to rise by 1.2% q/q in both Q4 and Q1 2021 following Q3’s 5% q/q rise.