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Wage growth will bounce back Wage growth turned negative in December due to another fall in end-of-year bonus payments, but it should soon bounce back above 1% y/y this year as the labour market tightens and strong corporate profits feed into a recovery …
8th February 2022
Soaring input prices have kept profit margins of manufacturers below their pre-virus peak even as those of services firms have hit record highs. However, manufacturers will catch up before long. As we noted in a recent Weekly , the net profit margins of …
6th 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
Output likely to tread water in Q1 The small fall in both retail sales and industrial production in December suggests that the post-Delta rebound was losing steam before local Omicron cases started to surge. And while output is still set to have rebounded …
31st January 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
Skyrocketing infections and a 10-day isolation requirement for close contacts of positive cases have resulted in a wave of staff absences in Japan. Domestic carmakers already struggling with chip shortages appear to have been among the first victims of …
24th January 2022
Manufacturing resilient but services hit by Omicron The January flash PMI suggests that the manufacturing sector continues to expand at a rapid pace, but there are mounting signs that firms are passing on higher input costs to consumers. By contrast, …
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
Inflation will peak around 1% Consumer price inflation reached a two-year high of 0.8% in December, but with energy prices set to fall back, we think that it will peak around 1% by mid-year . The headline rate was a touch below the analyst consensus of …
Exports to remain strong Exports were broadly stable in December after a sharp rebound in November. We think they’ll continue to recover at a decent pace this year as external demand for capital goods continues to rise and motor vehicle exports resume …
20th January 2022
The Bank of Japan today upgraded its assessment of inflation risks to “broadly balanced” for the first time since 2014. However, it reiterated its pledge to keep expanding the monetary base until inflation exceeds 2% and also signaled that it will keep …
18th January 2022
Business investment to continue to rebound strongly The rise in machinery orders in November supports our view that business investment recovered strongly across Q4. And private investment should continue to rebound strongly this year as firms look past a …
17th 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
Omicron supply chain disruption won’t lift consumer inflation much Balance sheet to shrink gradually, but that won’t cause tighter monetary conditions Bank still views weaker yen as positive and won’t respond with tightening While Omicron is likely to …
12th January 2022
Overview - The Omicron surge will cause a renewed fall in consumer spending this quarter. But we still expect GDP to return to its pre-virus path in the second half of the year. And while Omicron and any subsequent outbreaks may exacerbate supply …
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
Wage growth will rise to around 1% this year Wage growth fell to zero in November due a slump in bonus payments, but it should accelerate as the labour market tightens and the recent reopening feeds into a renewed recovery in overtime and bonus payments. …
We expect GDP to return to its pre-virus path in the second half of the year as services spending finally returns to near-normal. However, the risks to that forecast remain tilted to the downside as consumers may remain cautious for longer. Meanwhile, we …
5th January 2022
Underlying inflation to get to around 1% Headline inflation picked up in November due to another acceleration in energy inflation and a further rise in fresh food inflation. Underlying inflation remained weak, and while it will accelerate over the coming …
24th December 2021
Q4 is shaping up to be strong in line with our forecast. Mobility data point to another sizeable rebound in consumer spending, and strong export data and optimistic firm forecasts suggest that industrial production has bounced back sharply. (See Chart 1). …
22nd December 2021
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
While central banks elsewhere are becoming increasingly hawkish, the Bank of Japan kept policy loose today and is set to remain among the most dovish central banks for the foreseeable future . The Bank left its interest rate targets unchanged as widely …
Rebound in exports has further to run The jump in exports in November suggests that most supply chain constraints in the automobile sector had already eased last month. We think that exports will remain strong over the coming months as motor vehicle …
16th December 2021
Services catch-up has further to run The Q4 Tankan survey showed that the services sector has started to narrow the gap relative to manufacturing and we think that process has further to run. The headline index for large manufacturers stalled at 18, which …
13th 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
Emergency lending facility and corporate debt buying scheme to be extended Risks to inflation posed by worst-case Omicron scenario balanced Upside inflation surprise wouldn’t cause Bank to lose control of the yield curve While renewed virus restrictions …
9th December 2021
Wage growth to regain momentum Wage growth stayed weak in October but it should accelerate as the labour market tightens and the recent vaccine-led reopening allows a full recovery in overtime and bonus payments. Meanwhile, the rise in household spending …
7th December 2021
The pandemic has brought a halt to the last decade’s rise in Japan’s participation rate which had allowed the labour force to expand despite challenging demographics. Any post-pandemic recovery is likely to be short-lived: we expect the participation rate …
6th 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
Employment should rebound from recent slump Employment fell sharply again in October despite the lifting of states of emergency declarations at the start of the month. However, it should rebound sharply across November and December in line with the …
30th November 2021
Spending to keep rising as disruptions start to ease Retail sales kept rising in October despite another drop in motor vehicles sales. With supply disruptions now starting to ease and mobility picking up, they should continue to increase . The 1.1% m/m …
29th November 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
Industry set to recover as shortages ease November’s flash PMI points to a rebound in industrial output amidst early signs that supply shortages are diminishing. But while the services sector is now on the mend, the recovery there is lacking vigour . …
24th November 2021
Media reports that suggest that the Bank of Japan is losing control of short-term interest rates due to its “Special Deposit Facility” encouraging banks to park reserves at the BoJ are wide of the mark. The scheme does not threaten the viability of the …
22nd 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
Underlying inflation to continue to disappoint Headline inflation edged down in October despite an acceleration in energy inflation. Hit yet again by weaker mobile phone tariff inflation underlying inflation weakened further into negative territory. We …
While October’s trade data showed good exports still depressed by the recent collapse in domestic car production (see Chart 1), there is growing anecdotal evidence that the auto sector is on the cusp of a rapid rebound. Toyota said that its global …
18th November 2021
Car exports set for rapid rebound The recovery in exports in October suggests that supply shortages were beginning to ease in the automobile sector. We think that the rebound in exports will pick up pace over the coming months as production at Japanese …
17th November 2021
Domestic demand to bounce back strongly While the economy contracted yet again in Q3 as supply shortages and the Delta wave softened domestic demand, output should now be rebounding sharply. With most domestic restrictions removed, we expect GDP to regain …
15th 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
Post-delta recovery well underway The surge in October’s Economy Watchers Survey is the strongest sign yet that the economy is rebounding rapidly now that the bulk of the population is fully vaccinated and new virus cases have plunged. “Current …
9th November 2021
Wage growth set to recover Wage growth weakened in September as the Delta wave resulted in a drop in overtime working hours. But with the economy now rebounding and the labour market tightening, we still expect wage growth to climb above 1% next year. …
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
Continued caution by the elderly is a downside risk to our upbeat forecasts for private consumption, but we’re already assuming that households won’t return to their old ways anytime soon. 90% of Japan’s seniors are now double-jabbed, but recent analysis …
3rd November 2021
The supplementary budget that PM Kishida will compile by year-end will probably contain only half as much fiscal support as was provided last year. However, given that government spending will still be significantly larger than it was in 2019 even as …
1st 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
Carmaking should soon rebound from September slump While employment fell sharply again in September it should rise strongly across Q4 as economic activity gets back to near normal now that most restrictions have been lifted. Meanwhile, the sharp fall in …
The Bank of Japan shocked no one in keeping its interest rate targets unchanged today, a status quo we think will last for years. The Bank also revised down its growth forecasts for the current fiscal year and signalled that policy will have to remain …
28th October 2021
Consumption held back by supply disruptions While retail sales rebounded in September as the Delta wave ebbed, supply shortages in the car industry may prevent a full recovery until year-end . The 2.7% m/m rise in retail sales was stronger than the …
The weaker yen and higher energy prices will reduce the purchasing power of households a bit. But with the household savings rate still very high, this won’t prevent a strong rebound in services spending. Some commentators have been arguing that the …
26th October 2021
