Japan News:

https://www.yahoo.com/finance/news/japan-economy-set-biggest-hit-200000974.html

News Article:

(Bloomberg) -- Japan’s economy likely suffered its biggest contraction since 2014 at the end of last year leaving it in a vulnerable state, as fallout from China’s viral outbreak threatens to turn a one-quarter-slump into a recession.

A sharp drop in consumer spending after a sales tax hike is seen as the main culprit behind an annualized 3.8% contraction estimated by economists. The slide would be the worst for Japan since the second quarter of 2014, when a previous tax increase prompted the economy to shrink by 7.4%.

Comments:

There seems to be multiple news articles talking about the same thing the past two weeks or so. Yes the sales tax hike, as was expected, caused a contraction. But it should not be construed that it was no different than 2014. Both times, as expected, consumer spending decreased. But this time, the virus situation, even with Japanese consumers in the domestic economy, there might be a decrease in 2020 Q1 too.

The virus situation, of course has already, and much more to come, had an affect on tourism spending in Japan, as Chinese tourists and others begin to cutback on going to Japan.

On a side note; the Tokyo marathon foundation cancelled the general division of 38,00 mass participation runners as a caution, and only the elite division will run the Tokyo 2020 marathon year. Maybe no more than 200 runners total instead of 38,000+ runners.

News Article:

Economists previously viewed the expected fourth-quarter contraction as a tax-triggered blip compounded by typhoons that battered manufacturers struggling with weak export demand. But analysts are now concerned the coronavirus could delay or even derail a weak recovery forecast for early this year, an outcome that policy makers would find difficult to ignore.

“Japan’s underlying economy isn’t on a firm footing to start with, so growth can be easily pushed into a negative territory if something like the coronavirus happens,” said Hiroshi Miyazaki, an economist at Mitsubishi UFJ Morgan Securities. He takes a far more pessimistic view than the consensus, forecasting a 7.5% decline.

Even before the virus started to threaten the outlook, Japan’s domestic economy was looking shakier than government officials and economists had expected.

Comments:

It seems, whomever, always seem to say the Japanese economy is never on solid ground. But at the same time, the economy still keeps moving forward, despite the continuous negative outlook, and or continuous weak growth outlook. Take away the typhoon and the sales tax increase, then you have maybe the global economy, not so good, but take that away too, what you have left is  the virus situation. The virus situation, will most likely have the most affect and not the other factor from above.

The reason is of course the fear factor, Japanese consumers will be afraid to go to places, such as hotels or tourists areas, where there might be or have been Chinese tourists out of fear related to the virus. And then just not going out and doing their regular weekday or even weekend shopping/spending out of fears.

So yes, the Japanese economy, now because of fear is not on solid ground as Japanese tourists/consumers might be afraid to move around and spend as before.

News Article:

Analysts’ forecasts have become progressively gloomier as it became clearer that shopping rebates and other government measures meant to maintain households’ spending after the tax hike hadn’t worked as well as hoped.

Economists estimate that consumer expenditure fell 7.8% in the fourth quarter, alongside declines in business investment and exports.

The full extent of the economy’s weakness may also be masked if higher inventories give the headline growth figure a temporary boost. That’s because higher stockpiles now will be a drag on growth later when they’re sold down.

While most economists still project Japan’s economy to eke out growth this quarter and avoid a recession, they are again revising down their projections amid concern the impact of the virus in China will hit Japan’s exports and also reduce tourists to Japan from the mainland.

Comments:

When I visited Yokohama in September of 2019, just before the sales tax increase, it seems there was a spending frenzy, meaning everyone it seemed was buying everything, out of fear of the sales tax increase. I will guess, that the media had a large part to due to this, as they were talking about it everyday, urging consumers to spend before its too late. Meaning buy what you need before the sales tax increase. And many stores/shops of course had pre-sales tax increase sales to urge consumers to buy before the sales tax.

So like in 2014 when the sales tax increase went into affect in April of that year, the Q1 consumer spending was higher than normal, as most likely happened with Q3 in 2019 in Japan. So the idea that less consumer spending took place in Q4 in 2019, after the sales tax increase took affect in October is no surprise.

Of course the decrease in exports and investments maybe could have been expected, as the global economy is not where it should be, and whenever, business sentiment is not where it should be there is sometimes a decrease in business investments too.

And higher inventories is not a good sign, but again not a complete surprise as many companies produce/manufacture and sometimes don't see or expect the temporary downturn in business cycles.

Lets hope there is not a self-fulfilling prophecy in that everyone expects weak or dismal economic growth, which creates a multiplier effect in that which in turn reduces normal economic activity in the Japanese economy.

New Article:

Japan Needs Fiscal Aid, not BOJ Help if Virus Hits Hard, Says Abe Adviser

Prime Minister Shinzo Abe already took action in December to support the economy with a stimulus package that should lift growth as the year progresses. The prime minister also announced Thursday a limited raft of measures to help combat the impact from the viral outbreak, including loan guarantees for small businesses. He’ll likely want to see more evidence of economic damage before taking more extensive action.

The Bank of Japan is likely to hold off on using any more of its depleted policy ammunition to prop up growth, arguing that the special factors weighing on the economy are transitory.

The BOJ is still forecasting the economy will stay on track for a mild recovery, although downside risks from the coronavirus require close watching, Executive Director Eiji Maeda told parliament Friday.

What Bloomberg’s Economist Says

“Looking ahead, corporate production plans suggest a rebound in industrial activity this quarter. But virus-inflicted damage to growth in China -- a major trading partner and tourism source for Japan -- points to continued weakness.”

Comment:

There might be some needed economic help both fiscal, in a larger supplementary budget and more help from the Bank of Japan. Time will tell, as more news and statistics come in how much the virus situation has impacted the Japanese economy.


© 2020, Tom Metts, all rights reserved