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The 3.0% q/q jump in GDP in Q4 was stronger than most had anticipated. And while it still left output 2.9% below the peak reached ahead of 2019’s sales tax hike, other economic data released this week are consistent with our view that the economy will …
19th February 2021
Impact of state of emergency starting to fade The rebound in the composite PMI in February supports our view that the economy is coping with the second state of emergency better than most had anticipated . According to the flash estimate, the …
Inflation will continue to recover Headline inflation recovered substantially in January due to the removal of the artificial drag from the Go To Travel campaign, and we think it will rebound further over the coming months. Headline CPI rose from -1.2% …
Exports won’t rise much further While some of the rise in exports in January was likely due to the timing of the lunar new year, they should have continued to rise faster than imports across this quarter, with net trade likely to provide a small boost to …
17th February 2021
Recovery to keep surprising to the upside The strong rise in GDP in Q4 left output just 0.5% below pre-virus levels. And while most economists expect a renewed contraction this quarter due to the second state of emergency, we think that output will be …
15th February 2021
Light-touch restrictions beginning to relax We flagged last week that the state of emergency currently covering 10 prefectures was likely to be lifted before its scheduled end on 7 th March. Indeed, the government is considering lifting the declaration …
11th February 2021
December’s severe weakness a one-off The collapse in wage growth in December was entirely due to a fall in bonus payments. Wage growth will have bounced back in January and should soon turn positive as the labour market tightens and corporate profits …
9th February 2021
Third wave proving far less damaging than the first The resilience of the Economy Watchers Survey in January suggests that the third wave is causing far less economic damage than the first did. That supports our non-consensus view that the economy will …
8th February 2021
SoE extension not a major worry The government this week extended the state of emergency by a month for ten of Japan’s eleven prefectures. Tochigi was the only prefecture that was excluded as it met all six of the metrics required to lower the status of …
5th February 2021
While Japan’s vaccine rollout won’t begin until late February, we are assuming that inoculations proceed rapidly enough for most of the vulnerable to be protected by the middle of the year with the result that the economy returns to pre-virus levels in Q3 …
2nd February 2021
Higher consumption forecasts The modest 0.3% m/m fall in retail sales volumes in December suggests that consumer spending had built up some immunity to surging coronavirus infections. While we assume that overall household spending performed a little …
29th January 2021
Economy should avoid contraction in Q1 While industrial production and capital goods shipments fell in December, firms’ ultra-upbeat production forecasts for January support our view that GDP will rise this quarter. Meanwhile, the unemployment rate was …
Consumer spending to fall in Q1 The small fall in retail sales in December suggests that consumer spending only weakened slightly before the declaration of a state of emergency. However, it’s still consistent with our view that consumption will fall this …
28th January 2021
Slower virus spread not enough? Some commentators have suggested that winter surges in infections in “light-touch” countries such as Japan and Sweden are the final nail in the coffin for voluntary containment measures. Draconian restrictions on economic …
22nd January 2021
Second state of emergency far less damaging than previous one The small decline in January’s composite PMI is consistent with our view that the second state of emergency won’t throw the recovery off course . According to today’s flash estimate, the …
Inflation won’t stay negative for long While headline inflation dropped to an 11-year low in November, that was due to weaker energy and fresh food inflation. We expect inflation to recover over the coming months. Headline CPI fell from -0.9% y/y to -1.2% …
Despite the headwind from the third virus wave, the Bank of Japan revised up its growth forecasts for the next couple of fiscal years. And while Governor Kuroda didn’t provide much insight into what to expect from the upcoming review due in March, we …
21st January 2021
Trade to help keep growth positive in Q1 While export values failed to reach pre-virus levels again in December they should remain fairly strong at the start of the year, with net trade set to provide another boost to growth in Q1. The 2.0% annual rise in …
Our forecast for a 1.5% q/q fall in consumption in Q1 rests on the assumption that some businesses in virus hotspots will be forced to close in order to contain Japan’s most severe wave of the pandemic yet. But signs that new infections may already have …
20th January 2021
Consumers becoming more cautious Japan’s recovery was gathering momentum before surging infections began to take their toll. Machinery orders were 14.5% above Q3 levels across October and November, pointing to a sharp rebound in business investment last …
15th January 2021
No signs of stress in financial markets and policy already extremely loose Bank has already started to address side effects of aggressive easing Upcoming review still shrouded in mystery The Bank of Japan is unlikely to respond to the worsening virus …
14th January 2021
Business investment to recover this year The further rise in machinery orders in November followed a record monthly surge in October and suggests that business investment was rebounding strongly at the end of last year. We expect non-residential …
Conditions will get worse before they get better The sharp drop in the Economy Watchers Survey in December suggests that the third wave was weighing heavily on consumer sentiment even before the declaration of a state of emergency in Greater Tokyo last …
12th January 2021
Overview – Japan is battling a third virus wave and is a laggard in the global vaccine rollout race. Even so, we expect economic activity to return to pre-virus levels in the second half of this year as vaccines become widely available. Our forecast that …
11th January 2021
Nationwide state of emergency looms With Japan recording a record 7,000 virus cases on Thursday, the government yesterday declared a state of emergency in Tokyo and the three surrounding prefectures of Kanagawa, Saitama and Chiba that will last until 7 th …
8th January 2021
Wage growth will still turn positive later this year While wage growth weakened sharply in November it should recover strongly this year as overtime hours and bonuses recover and the labour market begins to tighten again. According to today’s preliminary …
7th January 2021
Third wave weighing on activity The recovery in consumer confidence flipped into reverse in December amid surging coronavirus infections. We think confidence will deteriorate further this year as tighter restrictions damage economic activity. That said, …
6th January 2021
It looks likely that a state of emergency will be declared in the Greater Tokyo Area over the coming weeks which could involve the closure of shops, schools and restaurants. While that will result in a fall in consumption, we still think that a rebound in …
4th January 2021
On its own, the draft budget for the fiscal year that starts in April points to a sharp tightening in fiscal policy. However, there are several reasons why the headline budget figures are overstating the severity of the upcoming fiscal drag. The draft …
21st December 2020
The Bank of Japan’s decision today to extend its emergency loan facility by six months didn’t come as a surprise. The announcement that the Bank would soon conduct an assessment of its easing strategy is more striking, but it appears unlikely to result in …
18th December 2020
Recovery will lose steam Survey data released this week suggest that economic activity continues to recover in the face of the most severe wave of coronavirus in Japan yet. The recovery in the Q4 Tankan beat consensus expectations, with the “all industry” …
Underlying inflation should soon start to recover While headline inflation fell sharply again in November due to weaker fresh food and energy inflation, we think it will recover early next year. Headline CPI fell from -0.4% y/y to -0.9% y/y last month …
PM Suga’s decision on Tuesday to halt the Go To Travel campaign for two weeks from 28 th December may put the recovery in services spending into temporary reverse. It comes after authorities in Tokyo, Osaka, and Nagoya this week extended requests for bars …
17th December 2020
PMI suggests third wave not derailing recovery The rebound in the composite PMI in December is consistent with our view that the third virus wave will slow the recovery but won’t derail it. The survey for the December flash PMI was conducted a week …
16th December 2020
Tailwind from net trade to fade While export values edged down again in November, they should rise above pre-virus levels. That said, due to the weakness in services exports, overall exports won’t return to pre-virus levels until the middle of next year. …
Recovery to surprise to the upside The sharp rebound in the Q4 Tankan supports our view that the economy will rebound relatively swiftly from the dislocation caused by the pandemic. And while firms’ capital spending plans point to weakness in business …
14th December 2020
The Nikkei 225 this week reached levels last seen in 1991, buoyed by a flurry of upbeat data releases. Revised figures show that GDP expanded by 5.3% q/q in Q3, a touch stronger than the preliminary estimate. The 17.1% m/m jump in machinery orders in …
11th December 2020
Recovery has surprised to the upside but third wave is a downside risk Bank to extend emergency lending facility New facility to support regional banks highlights discomfort with negative rates With the ongoing wave of infections in Japan the most severe …
10th December 2020
Business investment on the road to recovery The surge in machinery orders in October supports our view that non-residential investment began to recover this quarter. We expect them to rebound further over the coming months. The 17.1% m/m rise in machinery …
9th December 2020
The third supplementary budget announced by PM Suga today raises fresh government spending in response to the pandemic to around 12% of GDP. That lifts Japan back up the global fiscal support rankings and lends further support to our view that the economy …
8th December 2020
Recovery to slow but not reverse The drop in the Economy Watchers Survey in November still leaves it consistent with solid growth in consumer spending. As such, the survey is consistent with our view that the third wave will slow rather than derail the …
Recovery to surprise to the upside The sizeable upward revision to Q3 GDP and the sharp rise in “core” household spending in October support our view that Japan’s economy will recover from the pandemic faster than the consensus expects. Meanwhile, wage …
The surge in capital goods shipments in October and solid profit data for Q3 suggest that capital spending is ending the year on a strong note. We’re revising up our forecast for business investment this quarter. The budding rebound also bolsters our view …
7th December 2020
Containment measures may need more teeth Daily cases have started creeping higher again at the national level driven by a renewed rise in infections in Tokyo and Osaka. (See Chart 1.) However, across most of the country the virus is a long way off …
4th December 2020
Unemployment rate close to peaking While the unemployment rate rose in October, with the job-to-applicant ratio edging up , it’s unlikely to rise much further. Meanwhile, capital spending data suggest that business investment may have fallen a little less …
1st December 2020
The Bank of Japan’s new special deposit facility won’t lift the profitability of struggling banks meaningfully, nor should it result in a rise in money market rates. However, it is another sign that the Bank is becoming more worried about the impact of …
30th November 2020
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 …
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
