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Both Korea and Japan are experiencing second waves, but a stronger shift in consumer behaviour in Korea means the outbreak there is likely to have a larger impact on growth. As such, we’ve revised down our GDP forecast for Korea but kept it the same for …
27th August 2020
Net trade to provide large boost to Q3 GDP The 7.8% q/q plunge in GDP in Q2 wiped out all the gains since PM Abe returned to power in 2012, but timelier data suggest that a strong rebound is now underway. The 7.4% m/m rise in export volumes in July was …
21st August 2020
Economy to pick up again over the coming months The stagnation in Japan’s composite PMI in August is consistent with our view that the second virus wave has brought the recovery to a standstill but won’t cause a renewed downturn . According to today’s …
Underlying inflation to turn negative Inflation excluding fresh food and energy was just over zero in July and we think it won’t be long before it turns negative. We expect sluggish demand to overwhelm the impact of social distancing measures. The pick-up …
Net trade to boost growth in Q3 The July trade data are consistent with our view that net exports will provide a large boost to Q3 GDP growth. However, the fall in machinery orders to a seven-year low bodes ill for business investment The 19.2% annual …
19th August 2020
The money supply has recently been growing at the fastest rate in at least two decades, boosted by government giveaways and generous lending to non-financial firms. However, the expansion in the monetary aggregates falls short of the rates seen in other …
18th August 2020
Japan to recover faster than most Despite its less severe restrictions on activity, Japan’s economy was hit just as hard by the virus in Q2 as many other large economies. However, we think GDP will converge to its pre-virus path rather quickly. According …
17th August 2020
Is the second wave breaking? While it’s too early to jump to any firm conclusions, the slowing spread of the virus over the past week lends support to our view that the economy will be able to rebound strongly in the second half of the year. But with the …
14th August 2020
Despite the reintroduction of states of emergency in some prefectures, and renewed calls for jishuku (“self-restraint”) in many others, the steps taken by local authorities to curb the “second wave” of coronavirus cases have so far been tentative and …
13th August 2020
More containment measures, but still a light touch Over the past few days, three of Japan’s 47 prefectures have reintroduced states of emergency to curb the spread of the coronavirus. And with some other local authorities also rolling out fresh …
7th August 2020
Household incomes should continue to rebound Wage growth improved a little in June and household incomes are rebounding now that most furloughed workers are back in work. Meanwhile, the surge “core” household spending in June supports our view that …
The second virus wave that is hitting Japan supports our view that Japan’s economy will contract more sharply this year than most anticipate. However, a renewed state of emergency would probably not be as economically damaging as the one declared in April …
3rd August 2020
Unemployment will rise further The sharp drop in the number of furloughed workers and the rise in industrial production in June bodes well for the recovery in economic activity in the second half of the year. But while the unemployment rate edged down in …
31st July 2020
Activity holding up despite surging cases The 13.1% m/m jump in retail sales in June points to a strong rebound in consumption even if spending on services recovered less rapidly. And while Japan is in the midst of a “second wave” of coronavirus cases, …
30th July 2020
Consumer spending should continue to recover The surge in retail sales in June suggests that consumer spending will rebound across Q3 even if some restrictions on activity are reimposed to curb the renewed spread of the virus. The 13.1% m/m rise in retail …
Economy trumping virus containment in Osaka With cases now rising fast across most major Japanese cities and hitting a record high at the national level this week, many local governments are now facing a choice between containing the virus and keeping the …
24th July 2020
We do not expect the coronavirus crisis to undermine Japan’s long-term prospects. Capital accumulation will slow but there shouldn’t be a big impact on the supply of labour. And given that the response to the pandemic may end up lifting productivity, we …
23rd July 2020
Recovery set to be slow going Both the manufacturing and the services PMI only improved a little bit in July which suggests that the recovery from the pandemic will be more protracted than elsewhere. The flash estimate of the manufacturing PMI edged up …
22nd July 2020
With coronavirus cases hitting record-highs in Tokyo and rising in other urban areas, the government announced on Monday that it plans to give local governments greater power to request business closures. That could include penalties for firms that ignore …
21st July 2020
Underlying inflation to weaken much further While headline inflation was unchanged for the third-straight month in June, we expect it to fall much further over the medium-term. We think inflation will turn consistently negative in the second half of the …
Trade to rebound soon Export volumes were little changed in June but they should rebound soon as many of Japan’s trading partners are on the mend. By contrast, import volumes never fell much despite the slump in domestic demand and we think they will …
20th July 2020
Governor Koike sounds the alarm This week’s raising of the alert level in Tokyo to red – its highest level – has no major automatic consequences. But it brings the city government to the brink of once again asking some businesses to close. New infections …
17th July 2020
The Bank of Japan kept policy settings unchanged today as widely anticipated and we think it won’t announce major new measures over the coming months . The Bank’s decision to keep both its short-term policy rate as well as its target for 10-year …
15th July 2020
Overview – Japan’s economic recovery has been threatened by a new wave of COVID-19 cases but the government probably won’t respond with drastic restrictions on activity. Output should therefore recover over the coming months, but social distancing …
9th July 2020
Renewed outbreak in Tokyo manageable for now New confirmed coronavirus cases in Tokyo hit a record high of 224 today, exceeding the peak of 206 during the state of the emergency in April. While authorities in Australia and the US are responding to renewed …
Business investment to fall sharply despite slight rise in orders The slight rise in machinery orders in May suggests that non-residential investment may have slumped a little less than we were anticipating in Q2. However, with business sentiment …
Lending schemes still well below ceilings and appetite for bank lending has declined Strains in foreign currency funding markets subsiding Concerns about financial stability will prevent rate cuts The Bank of Japan is likely to leave policy settings …
8th July 2020
Wage growth to weaken further even as household incomes rebound Wage growth weakened further in May, but we think household incomes are recovering as furloughed workers either return to work or receive their mandatory leave allowance. According to today’s …
7th July 2020
May activity data consistent with our views The May activity data were weaker than most had anticipated but broadly consistent with our below-consensus forecast of a 9% q/q drop in Q2 GDP. While consumption soared in the US and many European countries …
3rd July 2020
The chances of PM Abe serving a fourth term as LDP leader have fallen considerably in recent months. Instead, speculation has turned to whether Mr Abe will be able to hang on as Prime Minister for the duration of his third term as party leader, which …
1st July 2020
Business investment to hold up well While business conditions collapsed in the Q2 Tankan, with economic activity now recovering that probably marks the trough. And surprisingly resilient investment forecasts for the upcoming fiscal year suggest weak …
Household incomes will continue to rebound The sharp drop in the number of furloughed workers in May supports our view that household incomes will rebound in the second half of the year. And while industrial production plunged again in May, it should also …
30th June 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Rebound in consumption will continue to disappoint The subdued rise in retail sales in May suggests that the lifting of the state of emergency didn’t provide a big boost to consumption and we reiterate our forecast of a 9% q/q plunge in Q2 GDP . And the …
Money stuck in the admin pipeline The flagship measure of April’s supplementary budget was the plan to distribute ¥100,000 to every resident. That was deemed a faster and more effective way of lifting consumption out of its coronavirus slumber than the …
26th June 2020
Premature fiscal policy tightening is part of the reason why inflation did not gain much momentum after the BoJ launched large-scale quantitative easing in 2013. But the main reason why inflation has remained stubbornly low is that the huge expansion in …
23rd June 2020
Services sector set to recover further While the manufacturing PMI weakened a little further in June, the rebound in the services PMI has further to run as virus-related restrictions are eased . As usual, the surveys were conducted since the middle of …
Bureaucracy hampering wage subsidy programme Some companies which have had to furlough workers appear to have judged that applying for the government’s employment adjustment subsidy is more trouble than it’s worth. The labour ministry simplified the …
19th June 2020
Underlying inflation will be negative across H2 Headline inflation was unchanged last month but the slow recovery in demand over the coming months should cause excess capacity to rise further. As such, we expect inflation to turn consistently negative in …
The recent spike in COVID-19 cases in Tokyo linked to nightlife establishments in Shinjuku underlines just how slow the road back to normality could be. Renewed outbreaks are likely to prevent a straightforward and swift economic recovery. Indeed, many …
18th June 2020
May should prove nadir for trade Import values fell much more than export values in May but that was mostly due to lower crude oil prices. Across Q2, net trade provided a sizeable drag on GDP growth. However, conditions should improve over the coming …
17th June 2020
The Bank of Japan today expanded its lending facilities further. The total amount of support for corporate funding is now equivalent to nearly 20% of the debt of non-financial firms and we don’t expect any further increases over the coming months. As …
16th June 2020
All restrictions to be lifted from next Friday The Tokyo Metropolitan Government announced on Thursday that it will join the rest of the country and follow the central government’s plan to lift all requests for businesses to close from the 19 th June. …
12th June 2020
Caught out with high levels of debt during the 1991 asset price crash, many Japanese firms then accumulated significant rainy-day funds to shield themselves against a future crisis. That trend intensified after the global financial crisis – when …
11th June 2020
Slump in orders points to sharp fall in business investment The large fall in machinery orders in April supports our forecast that non-residential investment will slump in Q2. With business confidence subdued, a recovery before the end of the year is …
10th June 2020
Existing lending schemes still well below ceilings But latest supplementary budget foresees additional subsidised lending Bank to secure funding for commercial lenders by further increase in lending schemes The Bank of Japan has already done a lot to …
9th June 2020
Wages falling already Wage growth turned negative in April at the height of efforts to contain the virus, and we expect wages to fall further over the coming months. According to today’s preliminary estimate, labour cash earnings growth fell from +0.1% to …
Recovery will be slow going The upward revision to Q1 GDP displayed in the revised estimate is cold comfort given that output is plummeting this quarter. We expect GDP to fall by another 9% this quarter. According to the second estimate released today, …
8th June 2020
Unprecedented slump in services spending We learned last week that retail sales plunged 9.6% m/m in April while Japan was in a state of emergency. Household spending on services is usually more stable than retail sending. But it has also been hammered …
5th June 2020
Many firms have furloughed employees during the state of emergency and stopped paying wages. But with the economy now opening up again and the government’s employment subsidy scheme starting to be used more widely, labour income should bounce back even if …
3rd June 2020
