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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
Underlying inflation to rebound Headline inflation in September turned positive for the first time this year due to spikes in fresh food and energy inflation. As the drag from mobile phone tariffs fades in the first half of next year, underlying inflation …
New PM Kishida won’t touch yield curve control Weaker yen unlikely to faze Governor Kuroda Near term growth forecasts to be revised down on supply shortages Sitting comfortably with continuity candidate PM Kishida in charge, the Bank of Japan won’t alter …
21st October 2021
Exports should be able to shake off supply shortages The sharp fall in exports in September suggests that supply shortages are severely hampering manufacturing activity in some sectors. However, we think exports will soon bounce back as supply shortages …
20th October 2021
While parts of Japan’s manufacturing sector remain under severe pressure from global supply chain shortages, domestic headwinds to the recovery have dissipated further in recent weeks. That supports our view that a strong rebound is brewing. Breaking …
19th 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
Recovery in business investment to gather pace The fall in machinery orders in August supports our view that the recovery in business investment stalled a little across Q3. But private investment should rebound more strongly in Q4 and into next year …
13th October 2021
The continued weakness in Japan’s inflation is partly due to the recent plunge in mobile phone tariffs and the long lags between global energy prices and household utility bills. Indeed, inflation is set to rise next year. But more muted cost pressures …
12th 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
Wage growth to strengthen further Wage growth recovered a touch further in August and it should rise higher over the coming months as the labour market tightens and vaccines allow a full recovery in overtime and bonus payments. Meanwhile, the sharp drop …
Overview - With the Delta wave having ebbed and the majority of the population now fully vaccinated, we expect a strong rebound in domestic demand over the coming months. But the inflation concerns that hang over other major developed economies won’t …
7th 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
Services sector to recover, but manufacturing running into supply shortages The latest Tankan survey was stronger than most had anticipated, supporting our view that the economy will recover rapidly as the Delta wave has ebbed. However, there are mounting …
Employment to bounce back strongly While employment fell sharply in August, that was due to the Delta wave and should only prove a temporary setback. We expect the jobless rate to fall further over the coming months as the lifting of virus restrictions …
Output may fall across Q3 The sharp falls in both retail sales and industrial production in August indicate that activity weakened significantly at the height of the Delta-driven fifth wave. But while that suggests that the economy may have contracted …
30th September 2021
Incoming PM Kishida has provided mixed signals on fiscal policy, pledging a large near-term stimulus while retaining ambitious medium-term consolidation plans. Given that he blamed deregulation for widening inequality, structural reforms will move further …
29th September 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
Services recovering, manufacturing struggling September’s flash PMIs suggest that while the services sector is bouncing back as the delta wave has ebbed, the manufacturing sector is suffering from weaker demand and mounting supply shortages . According to …
Inflation to peak at +1.0% y/y Headline inflation stayed negative in August as a boost from Go To Travel base effects was offset by a major drag from fresh food inflation. But looking through one-off factors such as Go To and April’s mobile phone tariffs …
Japan’s reliance on fixed, long-term contracts for its natural gas supply should limit the impact on consumers of the recent surge in gas spot prices currently being felt most acutely across parts of Europe. Japanese liquefied natural gas (LNG) importers …
22nd September 2021
The Bank of Japan left policy settings unchanged today and while a new Prime Minister could appoint a more hawkish BoJ Governor, we expect the Bank to keep interest rates unchanged for years. As universally anticipated, the Bank of Japan kept its interest …
There are good reasons to think that the natural stalling in globalisation underway won’t do much damage to Japanese manufacturers. And while an abrupt severing of supply chains between China on the one hand and the US and its allies on the other would be …
21st September 2021
The race to become the new LDP leader – and with it PM – formally began on Friday. With Delta cases plunging and the vaccination rate having caught up with many other advanced economies, whoever wins should be able to lift domestic restrictions and ride a …
20th 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
LDP leadership favourite Kono Taro may set his sights on shrinking BoJ balance sheet Next PM likely to be involved in choosing Governor Kuroda’s successor Both short- and long-term policy rates won’t be touched any time soon Dug in for an extended hold, …
16th September 2021
Japan’s exports set to surpass pre-GFC peak before long Today’s trade figures suggest that export volumes kept rising and we think that Japan’s focus on cars and machinery means that they will hold up better than in other Asian economies . The 26.2% y/y …
Business investment to continue rapid recovery The rise in machinery orders in July and optimistic projections for August and September support our view that business investment will rise strongly again across Q3. And private investment should continue to …
15th 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
Kono Taro is emerging as the favourite to succeed Mr Suga as PM. While Kishida and Takaichi are viewed as safer hands by LDP party elders, the outspoken Kono’s popularity with the public gives him the edge on the eve of a general election where the ruling …
8th September 2021
Wage growth to bounce back further Wage growth recovered in July and it should strengthen further over the coming months as the labour market tightens and vaccines fuel a further recovery in overtime pay. Meanwhile, the drop in household spending in July …
7th 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
Employment to return to pre-virus level by year-end While the Delta wave may reverse some of July’s jump in employment, we think vaccines will allow employment to surpass its pre-virus level by the end of this year. Meanwhile, the fall in industrial …
31st August 2021
Consumption will fall yet again in Q3 While retail sales recovered further in July, the high frequency data point to a renewed fall in August as the Delta wave intensified and we’ve pencilled in a 0.8% drop in private consumption in Q3 . According to …
30th August 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
The latest high-frequency data point to the relentless surge in new coronavirus cases starting to weigh heavily on consumer activity this month. And with full-blown emergency declarations to be expanded to cover around 80% of Japan’s economy from Friday, …
26th August 2021
Services sector to recover as most seniors now vaccinated Today’s flash PMIs suggest that the worsening Delta outbreak may yet result in a fall in consumption this quarter. And with supply shortages intensifying, the manufacturing sector isn’t stepping …
23rd August 2021
With daily cases surging to unprecedented levels and states of emergency extended to mid-September this week, there may not seem to be much light at the end of the tunnel for Japan’s economy. However, we’re cautiously optimistic that a strong recovery is …
20th 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 …
Underlying inflation will continue to pickup While headline inflation rose in July due to a pickup in energy inflation, it’s far weaker than the figure initially reported for June due to the introduction of a new CPI basket this month knocking off 0.7%pts …
Japanese exports to outperform other Asian countries Japan’s export volumes stagnated in July but given that a large share of those exports are cars and capital goods, we think they will rise again over the coming months. The slowdown in the annual growth …
18th August 2021
Delta has delayed not cancelled vaccine bounce Output only edged higher in the second quarter and won’t do much better this quarter as the Delta-driven fifth wave holds back consumer spending. But with the vaccine rollout still moving fast, a strong …
16th 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
Wage growth set to recover again The weakness in wage growth in June reflected both a slowdown in regular pay and a drop in summer bonuses. But with the labour market set to tighten and corporate profits on the mend, we think that wage growth will rebound …
With the Delta variant lifting new infections to a record-high, calls for a “hard” lockdown are growing. If that happened, services activity would fall further but we doubt that the government would shut down industry. And with households and firms now …
2nd 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
Activity to recover further despite Delta blip Retail sales, industrial production and employment all rebounded strongly in June, pointing to a sizeable recovery in activity in between the Alpha- and Delta-driven coronavirus waves. That supports our view …
The surge in input prices caused by supply shortages is starting to show signs of filtering through into higher output prices. Combined with upwards pressure on services inflation from a “vaccine bounce” later in the year, we now expect underlying …
29th July 2021
Services sector to recover as most seniors now vaccinated Today’s flash PMI suggests that the services sector was hit by Tokyo’s state of emergency but we still expect activity to recover towards the end of this quarter . The services PMI dropped from …
26th 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
