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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 …
14th January 2021
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
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
