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Asia-Pacific

Japan

Japan Consumer Prices (Jul. 2022)

Headline inflation was the highest since 1991 in July and we think it still has higher to climb. But this will not make the Bank of Japan budge on its ultra-easy monetary policy. Asia Drop-In (25th Aug.): What’s the economic impact of a weak yen? What does the latest China-Taiwan flare-up mean for decoupling? How ugly are conditions in China’s real estate sector? Join economists from across our Asia services for this regular briefing on the region’s big investment stories. Register now.

19 August 2022

Japan External Trade (Jul. 2022)

Japan’s trade deficit widened to a record high in July but it should start to shrink over the coming months as supply shortages and commodity prices continue to ease. Asia Drop-In (25th Aug.): What’s the economic impact of a weak yen? What does the latest China-Taiwan flare-up mean for decoupling? How ugly are conditions in China’s real estate sector? Join economists from across our Asia services for this regular briefing on the region’s big investment stories. Register now.

17 August 2022

Japan GDP (Q2 2022 Preliminary)

Japan’s economy grew in Q2 driven mainly by private consumption, though the overall figure disappointed mainly due to fluctuations in stockbuilding that won’t last. The recovery should persist through Q3 and Q4, though the pace will slacken a bit, as strong investment momentum is offset by a more subdued consumption outlook. We expect GDP to return to its pre-virus trend before long.

15 August 2022
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Demographic woes persist, tourists waiting at the gate

An exodus of long-term migrants contributed to the 0.6% fall in Japan’s population last year but with border controls loosened since March net migration is bouncing back strongly. Even so, we still see GDP growth settling around 0.5% over the longer-term as a shrinking workforce offsets productivity gains. Meanwhile, Japan remains a highly popular tourist destination and once the onerous procedural requirements for entry are lifted, probably sometime in Q4, tourist arrivals and spending should rebound strongly.

The implications of an escalating Taiwan crisis

The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant on China both as a source of imported inputs as well as a destination for exports, while major disruptions to semiconductor production in Taiwan would severely restrain Japan’s manufacturing industry despite its smaller trade links with China.

Output will return to pre-virus trend eventually

With a record virus wave sweeping across the country and consumer confidence slumping, we’re slashing our forecast for Q3 consumption growth from 0.8% to 0.2%. While the government has refrained from declaring another state of emergency, spending was weakening even before virus cases started to surge. That means that GDP will remain much weaker in the near term than the pre-pandemic trend, forcing the Bank of Japan to keep policy loose even as central banks elsewhere are tightening the screws. However, we still expect that gap to close eventually, for two reasons. First, while the long-running rise in the labour force participation rate stalled over the last couple of years, the share of the population available for paid employment is now on the rise again. What’s more, mobility has recently reached pre-virus levels for the first time since the start of the pandemic, which suggests that households are learning to live with the virus even if currently they are not spending as before. The still very high household savings rate should fall in earnest before long.

The rise and fall of Japan's energy imports

Japan is still struggling to wean itself off fossil fuels despite a new government push to boost solar power. However, the country has become more energy efficient over the past decade, which has helped the economy weather the impact of rising global energy prices. Meanwhile, the government has recommended a 3.3% rise in the minimum wage, the largest move on record. While overall wage growth would get a boost over the next year, we think it would still remain well below the 3.0% level the BoJ maintains is needed to sustain inflation above its 2.0% target  

Japan Labour Cash Earnings (Jun. 22)

The jump in wage growth in June was mostly driven by a surge in summer bonus payments and the Bank of Japan’s 3% wage growth target will remain out of reach for a while yet. More positively, the strength in overtime hours suggests that Japan is finally learning to live with the virus.

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