Japan Govt. Economic View: Updated Dec. 15

 https://mainichi.jp/english/articles/20211125/p2g/00m/0bu/063000c

Article:

TOKYO (Kyodo) -- Japan's government on Thursday retained its view that the economic recovery from the coronavirus fallout is showing "weakness," while expressing wariness over the impact ahead of recent higher raw material costs including crude oil prices.

"The Japanese economy continues to show weakness in picking up, although the severe situation due to the novel coronavirus is gradually easing," the Cabinet Office said in its overall assessment for November, retaining its view for the second straight month.

By component, the office upgraded its view for private consumption for the first time in 13 months, saying it shows "movements of picking up, while some weakness remains," after describing it as showing "further weakness" in the previous month.

Ideas:

The recovery of the Japanese economy is not going to completely come back to normal for sometime. With energy prices increasing, raw material costs increasing, with the continued chip shortage, the economy has a long way to go.

The severe virus situation might be easing somewhat in Japan, the same can't be said for other parts of the world, including Japan's neighbor South Korea, which now has more cases than the spring of 2020.

Consumer spending or private might be picking up, and most likely through the December holiday period including the week long New Year holiday, it most likely won't reach the pre-pandemic level and there are many constraints on consumer spending.

Home energy costs might be increasing, gas prices for cars keep increasing, food and supermarket prices keep rising and there are many consumers in some industries that still aren't where they should be.

But it will be interesting to see how much KFC increases its prices as buying KFC chicken is an annual Christmas tradition in Japan. If they do increase their prices, are they smart enough to not increase them too much for fear of maybe losing customers. Or is the buying of KFC chicken an inelastic food product that consumers are going to buy anyway despite an price increase.

Article:

The improvement reflected a pickup in consumer sentiment after the government on Oct. 1 lifted in all parts of Japan COVID-19 states of emergency that had asked people to refrain from nonessential outings, and eased on Nov. 1 its 10,000-specator attendance limit for large-scale events.

Despite an upgrade in consumer spending, the overall assessment was retained as the positive factor was offset by a downgrade in views for exports and industrial production due to disruptions in supply chains that have forced Japanese automakers to reduce output.

Exports in November have been "almost flat," revised downward for the second consecutive month, due to a slowdown in the Chinese economic recovery and falls in exports of auto-related products, it said. In the previous month, the government said they were "increasing at a slower pace."

Ideas:

A pickup in consumer sentiment is always a good thing but does it really mean more consumers are going to be out and about spending and the real question is how much are they going to spend with many products and services increasing their prices, not to mention the extra costs that consumers have to pay for gas, energy and supermarket price increases.

Exports are always a major area of focus for the Japanese economy, but at the same time it must be considered, while important, exports are not the entire Japanese economy. Some estimates indicate that exports might only make up 20 percent of Japan's GDP.

While in South Korea, for example, it is estimated that exports make up 50 percent of its GDP. Both South Korea and Japan seem to compete with similar export products, except for smartphones which Samsung is always near being the global leader in sales of smartphones, or was before the Chinese brands came onto the global stage.

At the same time Toyota has again come out with the possibility of some car plants being shut down on a temporary basis because of the continued chip shortage. It wasn't too long ago that Toyota signalled that it should be back to normal by the end of December. Most likely communication to its investors that all is OK, but as we see all is not OK, at least not yet.

Article:

The view on industrial production was downgraded for the first time in two months, with the report saying the pickup "appears to be pausing," partly due to sluggish exports of production machinery for Asian countries.

A Cabinet Office official said that although new car sales continue to decline amid a prolonged global semiconductor drought, expenditure on dining out and leisure activities such as going to movies and concerts is currently showing a modest recovery.

Looking ahead, the office said the economy is expected to pick up as "economic and social activities move toward normalization," but full attention should be given to a further increase in downside risks due to "supply-side constraints and raw material prices."

Ideas:

As seen, an economy is very complex with many living or functioning parts. While exports and the manufacturing industries are a big part of the Japanese economy, and maybe they drive the economy more that some other parts, they should not be considered as the only parts of the Japanese economy. 

One must forget there is a large services industry or services economy within the Japanese economy. There are many parts to the services economy within the Japanese economy. While some or a lot it is not doing to good right now, in the 21st century it might be bigger that exports or the manufacturing sectors. 

Dining out and leisure activities might be picking up but most likely they might not get back to the pre-pandemic level for sometime. Yes in December during the holiday season and during the week long New Year period there is most likely going to be surge in consumer spending but not at the pre-pandemic level just yet.

And yes right now there are many constraints or negatives that is going to keep the Japanese economy from getting back to the pre-pandemic level anytime soon.

Article:

The official said the effect of rising raw material costs, which are feared to squeeze Japanese companies' profits, "may become more noticeable in earnings reports for the October-December period for listed companies."

He added the impact of such cost increases to consumers must be carefully watched as well, as electricity bills are expected to rise further and many companies including daily goods makers have announced price hikes, which could dampen their purchasing power.

Ideas:

Rising materials costs, unfortunately, is a constraint that might keep companies from increasing worker salaries by at least 3 percent that Kishida wants to see happen in April of 2022. Even with the tax break incentives offered to companies if they increase salaries to a certain level, it might not be enough for many companies to participate in the tax scheme. 

Companies have been "passing on their costs" for a while and beginning in January it looks like many companies have targeted January as the month to pass on even more of their costs to customers/consumers.

If they signal that they are going to increase prices in January then consumer/customers might take advantage during the December holiday period to buy now at the lower prices before prices increase.

If prices on everyday items as supermarkets and other places the Japanese government or the Japan Central Bank might consider the idea of giving subsidies to food company suppliers as a way not to increase prices anymore that the increase in prices will continue to erode the purchasing power of those on fixed incomes and low income families. 

The Japanese government has already signaled they are going to give subsidies to gas/oil/energy suppliers as a way to help consumers by not increasing prices. It might be a good strategy to give subsidies to food supply companies without resorting to price controls which could distort the market.

Have a nice day and be safe!