Japan Factory Output News:

https://the-japan-news.com/news/article/0006384945

Article:

TOKYO (Reuters) — Japan’s factory output rose more than expected in January, providing some relief for policymakers amid heightened risks of a recession as the coronavirus outbreak in China disrupts supply chains and business activity.

The world’s third-largest economy shrank at the fastest pace in almost six years in the December quarter as a nationwide tax hike hurt business and consumer spending and soft overseas demand hit exports.

Comments and Ideas:

As expected, because an economy is very complicated and made up of many different industries and sectors, there can be both positives and negatives at any one time. The increase in factory output is definitely a positive and the news over the last few months related to machinery investment and spending was both positive and negative. But with the on-going virus situation, it remains to be seen if the positive factor output indicator will continue to be positive.

As expected, not a surprise, again as Q3 in 2014, a decrease should not have a surprise as consumer were adjusting to the sales tax increase and trying to figure out how to coordinate their limited incomes, becoming more price conscious in the process. Of course the downward trend in global trade didn't help either.

Article:

Official data on Friday showed factory output rose 0.8% in January from the previous month, a faster expansion than the 0.2% gain in a Reuters forecast, and following a downwardly revised 1.2% rise in the previous month.

That offers some good news as policymakers face pressure to boost growth to offset the fallout from the coronavirus, which has disrupted economic activity in China.

Manufacturers across Japan rely heavily on customers in China, the world’s second-biggest economy, to buy their products, especially the parts and equipment that are supplied to China’s factory floor.

“Output activity [in Japan] will likely slow down until the spread of infection is over,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Although production in China has restarted following the Lunar New Year, it will take time for output ratios to recover.”

If infections can be contained, output should start picking up in April, said Minami. Under a worst-case scenario, that may not happen until summer.

Comments and Ideas:

Any increase is good. Especially when it relates to manufacturing when the two countries, Japan and China are so heavily interlinked. In reality three countries are heavily interlinked as South Korea also buys a lot of parts and equipment, and other resource materials, such as needed to make high tech products, which Japan seems to have an advantage in parts and materials for the high tech products.

Yes when output does improve in China, it will take time for outputs and ratios to get back to normal or close to it.  Most likely, both Japan and China maybe are nearing the worst-case scenario situation.

Article:

A spokesperson from Japan Display Inc. told Reuters while its main local panel plants were operating normally, the virus had affected some operations in China due to shortages of components and workers.

At Sharp Corp., operating rates at panel-related plants in China have also been lowered by component and worker shortages, as well as disruptions to distribution networks, said a spokesman.

Manufacturers surveyed by the Economy, Trade and Industry Ministry expect output to gain 5.3% in February and slump 6.9% in March. The February forecast was based on companies’ plans for the month as of Feb. 10, which means any output cuts due to the coronavirus after that date are not included in the forecast.

Production was lifted by a sharp increase in autos and other transport equipment, which offset a decrease in production machinery.

Inventories rose at their fastest pace since March 2018, up 1.5% in January from the previous month, boosted by autos and production machinery.

Comments and Ideas:

As the virus situation doesn't seem have hit Japan, just yet, meaning most factory businesses are not seeing disruptions related to worker shortages that might be evident in China. The disruptions in orders to China, related to parts and supplies, of course is another situation.

So whatever output cuts will most likely show up in the March forecast and not the February forecast. Which seems about right, as the virus situation continues, meaning there might be an increase in cuts in March not seen in February.

An increase in inventories can be both a positive and a negatives and in being positive, the possibility that demand is increasing and companies are responding to an increase in demand. On the other hand, a common economic phrase, an increase in inventories could be  negative in that demand for a product has decreased and or a company's projections related to future sales were off, meaning they expected more in sales than what really is happening.

Article:

Unemployment rises

While the better-than-expected output eased some policymaker concerns, job market data on Friday was less positive.

Retail sales also dropped 0.4% in January, at a slower pace than expected by analysts.

Friday’s data follows a string of weak indicators in recent weeks, including manufacturing and service sector activity gauges that showed the coronavirus outbreak has taken a toll on the economy.

The seasonally adjusted unemployment rate rose to 2.4% in January from 2.2% in December, and the jobs-to-applicants ratio fell to 1.49 in January from 1.57 in the previous month, government data showed, although that was partly ascribed to a change in survey methodology.

“The rise in the unemployment rate coupled with a sharp fall in the job-to-applicant ratio last month suggests that the economic fallout from the sales tax hike has started to curb firms’ demand for workers,” Tom Learmouth, Japan economist at Capital Economics, said in a note. Speech

Comments and Ideas:

The drop in retail sales again most likely is that consumers are still trying to figure out the sales tax into their regular everyday lives. However, at the same time, the virus situation also might be starting to affect department store sales, restaurant sales etc. as consumers are avoiding places where there are a lot of people.

Case in point. whenever I go to Sogo Department store in the Yokohama station shopping area, it is always very busy, meaning too many people. The virus situation might lessen the number of people/consumers/shoppers and they think twice about going out into crowded places.

Also be positive, this could be an incentive for increased on online shopping if stores can take advantage of it with partnering with logistics or delivery companies to meet the needs of consumers who now want to shop and buy online to avoid large crowds.

Japan is still a country with a labor shortage, and the sales tax situation alone, with all thing equal, is not going to greatly affect or increase the unemployment rate. Consumers usually will adjust to the increase in prices and get back to their normal shopping and buying routines or close to it. However of course the virus situation is a different variable altogether.

And again, the virus situation might be a paradigm shift toward a large increase in online shopping, which in turn will mean an increase for shipping and delivery companies.

© 2020, Tom Metts, all rights reserved

Japan Supermarket Sales Still Weak:

https://mainichi.jp/english/articles/20200226/p2g/00m/0bu/103000c

Article:

TOKYO (Kyodo) -- Japan's supermarket sales showed a fourth consecutive monthly fall in January, remaining pressured since the consumption tax hike last year, while a warmer-than-usual winter caused many vegetables to grow faster and their prices to decline, an industry body said Wednesday.

Comments and Ideas:

I usually tend to be positive about the Japanese economy and considered the 8 to 10 percent sales tax event to have a short to at least most medium term affect on the economy. Perhaps what we are seeing is the medium term affect. But at the same time, this might not be normal circumstances, and with any country and any situation. the news is getting gloomy, which can have an affect on consumer confidence, and as a result consumer might begin to think twice about their normal everyday consumer spending, such as at supermarkets.

However, with normal supply and demand, whenever there is a so-called surplus of a product, which might have been caused with a warmer-than-usual winter, prices will tend to decrease as the more supply than expected suppliers need to sell more than usual, and as result reduce the price of the product to lower supplies. And as such maybe the lower prices might have been enough or an incentive for consumers to buy more, meaning more sales, but maybe that didn't happen in this situation, and maybe Japanese consumers have now become even more price conscious than they already were.

The idea that these two different events can cancel each other out is not exactly a good way of thinking, but lower prices can sometimes means higher sales, or act as an incentive for consumers to buy more. But this might not have been the case. Other factors are definitely in play here.

Article:

Sales in the reporting month declined 2.0 percent from a year earlier on a same-store basis, according to the Japan Chain Store Association.

Sales at 10,543 supermarkets operated by 55 companies totaled 1.00 trillion yen ($9.1 billion), the association said.

The data reflected the country's sluggish personal spending since the consumption tax was raised in October to 10 percent from 8 percent and the effect of the warm winter on sales of food, the main revenue source for supermarkets.

Comments and Ideas:

The idea of a 2.0 percent decline from a year earlier is not as bad as it could have been. What remains to be seen is what the overall Q1 will be now with the virus situation fully in play. How much will consumers really but back on supermarket spending. The cutbacks maybe in restaurants and department stores maybe can be expected, but supermarkets and convenience stores are related to everyday needs and everyday products. Perhaps the decrease related to the virus situation won't have a huge affect on supermarkets compared to department stores and restaurants.

Article:

Food sales in January declined 0.1 percent from a year earlier on the same-store basis. Sales of clothing fell 8.0 percent, and those of household goods sagged 6.2 percent, the association said.

An association official said the impact on supermarket sales of the coronavirus spread appeared to be limited in the month, but added, "There are fears of consumer sentiment being further cooled" if the economic fallout from the virus lingers.

Comments and Ideas:

If related to supermarkets, then the 0.1 percent decrease may not be that big of a deal. While the decrease in sales of clothing might be as the prices for clothing are higher, and as such maybe consumer have become a little more price conscious about clothes. However, it should be noted, the winter was rather mild in most parts of Japan, and as such, it would be expected that maybe clothing sales were less than the year before. The decrease in household goods, whatever they mean exactly, maybe consumer have become a little more price conscious on these items too.

Yes consumer sentiment is a challenge if the virus situation becomes even more prevalent in Japan, as consumers, besides the hording of certain products, such as paper type products, maybe might begin, if not already, to do less supermarket shopping to avoid crowded places.

Which means, online supermarkets and other online shops of everyday things might dramatically pickup and see sales of these places grow substantially in the future.

In any economy there are positives and negatives. Unfortunately the virus situation and consumer sentiment maybe not so good to go out and go to crowded supermarkets, it might be a positive for online shops.

© 2020, Tom Metts, all rights reserved

Bloomberg Japan News:

https://www.yahoo.com/finance/news/history-repeats-sales-tax-hike-200000679.html

Article:

(Bloomberg) -- Japanese housewife Matsuko Mitsui had been meaning to buy a new air conditioner for years, but it took the looming sales tax hike in October to spur the 64-year-old to finally make the purchase.

Like many people in the country, she isn’t planning to splash out again anytime soon, leaving the economy teetering on the edge of recession. And that was before the spreading coronavirus gave yet more cause for caution.

“These days, I really scrutinize the price tags,” Mitsui said. She isn’t her family’s breadwinner, but she says the heightened price consciousness she senses in herself and people like her is linked to the squeezing of household finances by higher taxes and meager wage gains.

Comments and Ideas:

The sales tax was back in October, but seems some want to still keep bringing it up in the news. The second sentence seems to indicate the AC was a one-time purchase, which of course it is/was, but the second sentences makes it sound like this person is not going to spend on anything again.

Another idea is that there is always talk about the Japanese economy always "teetering on the edge of recession." Usually because consumer spending is never what the economy wants or needs. In most advanced economies, such as Japan, consumer spending can be 50 percent of more of GDP. As such, Japan at times, due to it be one of the fastest ageing societies around, with South Korea, being up there too, as both are one or two or two and one etc. being aged societies tend to spend less. Or more specifically as the 65+ age group becomes a larger part of the society and economy, that potentially might mean less consumer spending in the economy, and it might have nothing, in reality, to the sales tax increase.

Yes there is an element of price consciousness, as anywhere in the world, but the 8 percent to 10 percent increase doesn't seem to be much related to everyday household products. Yes for cars, houses etc. it is a big deal, but for everyday things, maybe not so much for most consumers.

And yes, wage gains seems to always be a major challenge in Japan, as the BOJ and the Abe government have been trying to get companies to increase wages to boost the economy, without too much success yet.

Article:

Japan saw a 6.3% economic contraction in the last three months of 2019, fueling criticism of Prime Minister Shinzo Abe’s decision to carry out the tax increase at a vulnerable time for the economy. After factoring in the early signs of impact from the coronavirus, analysts now believe the economy is falling into recession.

The downturn comes at a bad time for Abe, whose support is already falling because of scandals and doubts over his government’s handling of the coronavirus outbreak. Three surveys published last week found the approval rating of his cabinet had dropped.

The logic behind the tax increase is that the government needs more money to provide pensions and health care for the growing legions of elderly like Mitsui, while reining in the developed world’s largest government debt pile.

The thinking of reflationists is that the policy priority should be to ensure a strong growth cycle before any pulling on the nation’s purse strings. A tax increase risks sapping the economy and undoing progress toward reflation, they argue.

Comments and Ideas:

Once again, as has been written in other posts here, the 6.3% downturn is similar to the 2014 Q3 downturn when the sales tax was increased from 5 percent to 8 percent.  It seems, the Japanese economy is always vulnerable, because so much of it depends on global trade and consumer spending. Global trade, and of course the US/China situation, which has eased somewhat, but still a concern, and of course consumer spending is never what the BOJ would like.

There is one thing, one idea, about Japan politics; meaning citizens in Japan prefer stability, even if they don't like the politicians that much. If Abe can continue to provide stability in the economy, there might not be a concern.

Yes the reasons for the tax increase are valid, health care and pensions being a major priority now, and the ever continuing government debt to GDP ration which is the highest in the world, at maybe 250 percent. But its been that way, its seems for 30+ years and the economy is still working.

Again the sales tax increase, saw Q4 consumer spending and GDP decrease, but, with all things equal, and all things considered, taking away the virus situation, the economy should have been able to bounce back to a somewhat normal growth situation. But the virus situation has changed everything.

Article:

“There’s absolutely no reason to raise the sales tax. Absolutely no need,” said Takuji Aida, chief Japan economist at Societe Generale SA. “It’s described as a tax increase in preparation of further aging, but the government isn’t a household. Just because you’ll need money later, doesn’t mean you need that money now.”

The Abe administration had tried to learn as much as it could from 2014, when a slightly larger increase in the tax helped snuff out the initial momentum of Abenomics. A higher sales tax then hadn’t meshed well with the goal of sparking higher prices, higher wages, higher consumption and higher growth.

Japan Leaves No Stone Unturned as It Prepares for Sales-Tax Blow

So the government came up with a range of ideas to support demand and limit the impact of the tax this time around. But those measures, including rebates on cashless payments that mystified older generations, failed to prevent an 11% quarterly slide in consumption after the tax.

It’s increasingly clear that the sales tax hit isn’t simply a problem of a single quarter. Growth figures from previous increases show that the blow to the economy endures.

In the 10 quarters before each tax move and the 10 quarters after the contraction that followed, annualized quarterly growth has weakened by an average of at least 0.5 percentage point after each move. For the 1997 bump, the difference was 2.9 percentage points, though this coincided with the Asian financial crisis and Japan’s own banking sector bust-up.

Comments and Ideas:

Of course there are always differences of opinion on policy and strategy on how to solve different situations or challenges. The sales tax situation is no different. The 2014 sales tax increase, in hindsight, maybe not so good, but it didn't completely stop economic growth. Yes, the goal of higher prices, higher wages, higher consumer spending of course should lead to higher economic growth, with the BOJ has been working on the first three for a while, without too much success, or not as much as they want.

Rebates on cashless payments may sound like a good idea, as more and more of Japanese consumers are now using cards instead of just cash. However, the older generations in Japan, it seems still want to use cash only and maybe something should have been done for them, if it wasn't, if possible, like a sales tax increase of less for the older generations. At least for a while. If at all possible.

Again the 11% probably was not that much different than the 2014 situation. Again it must be noted, Japanese consumers, for the most part, maybe part of culture, are not free wheeling spenders like US consumers or even now Chinese consumers. So it should not be a surprise that spending is/was down after the sales tax increases.

Article:

Bad Moments

Abe likely thought he had found a sweet spot for raising the tax ahead of an Olympic year that would support the economy through extra construction investment and 40 million visitors. But a global downturn, a super typhoon and now the coronavirus have changed the narrative.

“The timing was terrible,” said Harumi Taguchi, a Tokyo-based principal economist at IHS Markit on the October hike. Given the residual effects from the China-U.S. trade war, the fall in production and struggling wages, more direct fiscal support was needed at the time of the tax hike, she said.

Abe’s stimulus package unveiled in December, which notably gave scant mention to the tax increase, was therefore a case of too little, too late. For its part, the Bank of Japan has stayed on the sidelines. Its support for the economy already extends well beyond the measures employed by other major central banks.

BOJ Governor Haruhiko Kuroda, himself a former finance ministry official, has supported the tax hikes of the Abe administration. But with the negative side effects of the central bank’s stimulus building, the BOJ would likely prefer the government to step in first if the economy needs further help.

Comments and Ideas:

Yes, it might have not been not so bad an idea, if you know extra spending, such as construction investment would pick up the slack along with the projected 40+ million visitors.

But then the unexpected hit, with the continued global downturn, the typhoons, and now the virus situation have all changed the outlook. Yes more fiscal support maybe should have been what is/was needed. Especially now, the economy may need both fiscal and monetary assistance in the future. No doubt, as other articles have mentioned the BOJ might not have much in left in tools or strategies to combat the future economic situation.

© 2020, Tom Metts, all rights reserved
 

BBC:Germany and Work: How about Japan?

https://www.bbc.com/worklife/article/20200218-can-germans-right-to-switch-off-survive-the-digital-age

BOJ News:

https://www.yahoo.com/finance/news/bank-japan-says-ready-ease-080116510.html


Article:

RIYADH (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Saturday the yen's recent declines were largely driven by a strong dollar, shrugging off some market views that the widening coronavirus epidemic is triggering an outflow of funds from Asia.

Kuroda also said he had not changed his view that Japan's economy would continue to recover moderately, suggesting that he saw no immediate need for the BOJ to expand stimulus.

"If needed, we will take additional monetary easing steps without hesitation," he told reporters upon arriving at a Group of 20 finance leaders' gathering in Riyadh.

"But the situation is still uncertain. I don't think our scenario projecting a moderate economic recovery has been derailed."

Comments:

Of course anytime there is the G20 or any other large international or global gathering, some usually is going to be positive about their economy. You usually never hear anything too negative other than "were watching carefully" " We got this situation under control" etc. So this is nothing new and to be fair, Kuroda has usually been very positive about the economy.

But he also reassures those listening, if needed, additional easing steps will be taken, meaning we will work fast to ensure the foreign capital and others will not leave the country in a situation that might show too much decrease in the economy.

"But the situation is still uncertain" might mean he sees the virus situation maybe offsetting the moderate recovery.

Article:

The fallout from the coronavirus crisis has overshadowed the meeting of the world's top economies kicking off on Saturday. Business disruptions in China are starting to spill over into the global economy, with parts shortages rippling through supply chains as far away as the United States.

The yen bounced back on Friday after suffering its worst two-day performance since 2017 on worries about the health of Japan's economy, which has been hit by supply-chain disruptions and a plunge in Chinese tourists caused by the virus outbreak.

Kuroda dismissed views held by some market players that the yen could be losing its status as a safe-haven currency.

"When you look at recent developments, the dollar is strengthening against the yen, the euro and various currencies including those in Asia," Kuroda said.

"It's true there is uncertainty over the coronavirus outbreak's impact on the Chinese, Asian and global economies. But I don't think there has been a fundamental change in the exchange-rate market."

Comments

Unfortunately the virus situation has now become a global situation, and all are now having some crisis in their respective countries.

Is there a definite outflow of currency in Asia. Probably no more than normal but maybe some more than usual, but not enough to cause a major financial crisis.

Japan has been considered a 'safe haven" for a long time, due to the stability of the overall economy. While not growing  at a robust rate, or what everyone wants, it is still a very stable economy with "modest" economic growth.

Article:

UPBEAT ON OUTLOOK

Japan's economy shrank at its fastest pace in nearly six years in the December quarter, as soft global demand for Japanese cars and machinery and last year's sales tax hike hurt domestic consumption and business spending.

Some analysts expect the economy to contract again in the current quarter, dashing the BOJ's hope that an expected rebound in global growth in the middle of the year will underpin Japan's fragile recovery.

Kuroda brushed aside voices of pessimism, saying that corporate capital expenditure remained firm and rising household income was underpinning domestic consumption of an array of goods and services.

Temporary factors that led to the October-December economic contraction, such as damage from a string of typhoons and the sales tax hike, will fade later this year, he said.

While the coronavirus outbreak was a fresh risk, other uncertainties that dragged on growth like the Sino-U.S. trade tensions and Brexit were subsiding, Kuroda added.

"I don't expect Japan's economy to suffer a severe downturn," he said.

Under a policy dubbed yield curve control, the BOJ caps long-term borrowing costs around zero to spur growth and achieve its elusive 2% inflation target.

Many BOJ policymakers are wary of ramping up stimulus unless the economy is hit by a severe shock due to their dwindling ammunition and the rising cost of prolonged easing such as the hit to commercial banks' profits from ultra-low interest rates.

Comments:

Everyone keeps writing the Japan's economy shrank at its fastest pace in nearly six years. Well when was that before? In April 2014 when there was the 5% to 8% sales tax increase. So a less than normal or wanted economic growth in Q3 in 2014 was not a surprise. So it should not be a surprise that Q4 on 2019 didn't grow as much as everyone wanted.

Of course add in global trade challenges and business investment in machinery etc. that also added to the challenge.

It should be noted that business investment in November was actually up and we seem to forget the increases quickly when the decreases are in the new today.

Business investment, like any other spending, is never exactly an upward linear progression, and there will be months of increase, months of no change, and months of decrease, as part of the normal business cycle.

Kuroda seems to want to say all is not bad... with..... "corporate capital expenditure"
 spending is firm, meaning again some months up some months down, and some months no change, and really meaning its still there.

And then...."rising household income' is a very good sign, if its true. But the question is how much is it, and is it was it enough to offset the 8% to 10% increase in the sales tax.

Consumers need to feel good about the increase in their income, meaning they feel better and they might save some of it and spend some of it, and then as Kuroda hopes that extra spending because of the extra income, will help the economy, if there is a segment of the consumers who have cut back on their spending due to the sales tax increase.

And finally.... "a severe shock"? Well I think that the possibility of a "sever shock" is about to become a reality or very likely with the virus situation.

But here is the problem. There is a phrase..... "self fulfilling prophecy" meaning what you think and say eventually can become reality.

Kuroda knows this, so he, for now, is not going say outright, just yet, that the Japanese economy is headed downward due to the virus situation.

He will watch very carefully and then, like most central banks, will pick the right time to make a statement about the situation.

Central banks are very cautious with the language they use because the wrong phrase here or their can spur markets, stock markets both up and down, so they are very cautious about what they and when they say it.

Here is an example; "There is going to be a shortage" of something so everyone panics, begins to horde and then all of a sudden you have a shortage of something because people become too emotional.

We lets see, how many products in Japan now have a shortage because of whomever, thought there would be a shortage of that product.

© 2020, Tom Metts, all rights reserved