Japan Economy Upgrade: Updated on Jan. 6

 Source: https://mainichi.jp/english/articles/20211221/p2g/00m/0bu/041000c

Article:

TOKYO (Kyodo) -- Japan's government upgraded Tuesday its key assessment of the country's economy for the first time in 17 months, citing a rebound in private consumption fueled by low numbers of new COVID-19 cases.

The Japanese economy "shows movements of picking up recently as the severe situation due to the novel coronavirus is gradually easing," the Cabinet Office said in its report for December. In the previous month, it said the economy was showing "weakness."

The office's view for private consumption was upgraded for the second consecutive month and was the most upbeat among the categories, with the report saying it "is picking up recently."

Ideas:

The Japanese economy may be picking up as suggested but most likely its a long way from getting back to some kind of normal or new normal.

There are still too many parts that just aren't where they should be at this time. Of course the biggest concern might be the services sector and the travel and tourism parts of the services sector.

Domestic toursim, even if and when it back to some kind of normal or even a new normal, can't replace the thousands of international tourists that came to Japan before the pandemic.

So until Japan begins to open up again to international tourists, the services sector and specifically the tourism sector is going to contrain the services sector from getting back to a pre-pandemic level.

Consumer spending might be increasing but can it pick up significantly to help the economy grow. Consumer spending has always been a weak link in the Japanease economy, and even though its increasing some, it might not be enough, yet, to really help the economy get back to normal.

Article:

Spending increased not only in eateries but also in entertainment businesses such as movie theaters and amusement parks, while new car sales also bounced back after hitting bottom last summer, a Cabinet Office official said.

Despite the emergence of the Omicron coronavirus variant, the number of nationwide daily new COVID-19 cases has stayed mostly below 200 for about a month in Japan, compared to over 25,000 at its peak in the summer.

The government fully lifted the coronavirus state of emergency in October. Reflecting improvements in confidence among lodging and dining-out service providers, the Cabinet Office revised upward its view for business conditions for the first time in five months, also saying it shows signs of "picking up."

Ideas:

The number of cases at below 200, when this article was written, is not where the cases are now. As of Jan. 5 the cases has increased to 1,000 according to some news outlets.

Its good that consumer spending is pickup and increasing but it has a long way to go. Some consumers may feel constrained to spend a lot becuase of the increase in gasoline prices, the incease in home energy prices,and the inceases supermarket prices, and feel they don't have enough disposable income to spend a lot.

Part of that might be related to not having a salary increase for over 10 years as some have suggested. For the Japanese economy to grow and get out of the pandemic economy, companies need to step up and do their part by increasing the salaries of their employees.

Of course they might say they are too constrained to increase wages because of increase in supply costs, the increase of energy costs, and for some the increase in logistics costs globally.

And then there is the continued idea that some companies are reluctant to pass on their costs to the next in the chain and they know consumes are very sensitive or very elasitic to increases in prices. As such they continue to abosrb their costs, which results in being contrained to increase wages and or invest in any projects they think they need or are important.

Some lodging, hotels, and restuarants might be feeling better, but its a long way from where it should be. But something of course is better than nothing and it might be a good start to getting back to some kind of normal.

Article:

But business investment was downgraded for the first time in 13 months, saying it "appears to be pausing for picking up." The downgrade follows a fall in seasonally adjusted capital spending in the July-September period, affected by supply chain disruptions stemming from the pandemic, according to the office.

"We see the fall in July-September quarter as temporary," the official said. "We consider capital expenditure is still on a recovery track as corporate investment plans for fiscal 2021 have not largely changed."

Exports in the reporting month have been "almost flat," using the same wording for the second straight month as the pace of recovery in the Chinese economy slowed.

Ideas:

Business investment is never a complete upward trajectory as there will be periods of increase, periods of pausing, and periods of decrease and or less than the quarter before. As business investments might follow a business cycle movement, of pausing, increases, adjustments related to business conditions.

The supply chain disruptions might have caused some of the captial spending pauses or decreases but there are always a multitude of reason why businesses decide to spend or not spend again becuase of the many external factors that businesses are facing.

Some would say the pandemic or a down time is the best time for a business to spend or invest as some or many companies might wait for perfect or near perfect conditions to spend again. But a company that spends early and is prepared when conditions improve might have a competitive advantage over companies that take a wait and see approach.

Just becuse exports might be flat doesn't mean that there is not a good level of economic activity or export activity. It only means exports might not be increasing significantly from the last reporting period. 

As the Japanese yen is weak, still indicates that exporters are able to bring in a significant amount for their exports. That in itself is important as importers are constrianed or are having to pay even more for the products they bring into Japan. The key of course if the exports are more than imports which increases Japan's current account balance.

To be careful here, China, needs to get back to opening up its economy during the pandemic and to get back to normal as soon as possible, and try to fix some of its econmic structural challenges.

Article:

The view on industrial output was also retained. The report said it "appears to be pausing for picking up" partly because China slashed smartphone production amid the global chip shortage.

Looking ahead, it said the economy is expected to recover but added "attention should be given to the effects of the novel coronavirus" including its variants.

The official said the government will carefully watch the trend of private consumption, pointing out there are mixed factors such as a decrease in year-end parties but an increase in transportation reservations for returning to hometowns during the New Year holiday.

Ideas:

Most likely not just in China but smartphone production has paused because of the global chip shortage. Most likely smartphone factories globally have been affected and not just car production factories.

And economy is very complex and the Japanese economy is no exception. Some parts of the Japanese economy may be picking but some parts of the Japanese economy might still be lagging for a variety of reasons.

The fact that the omicron virus looks to have finally fully arrived in Japan is not a good sign for the Japanese economy and its attempt to fully recover. If the omicron situation explodes and becomes another delta virus situation like last August, the Japanese economy might be headed for another setback in the near future.

There might have been an decrease in year-end parties but that might not be that big of deal as consumer spending has many parts. And yes an increase in travel might bode well for the economy, but most likely it won't be enough to overcome the pandemic situations. 

Looking at pictures of new outlets and the travelers on Dec. 29th, Wednesday, it looked like the number of people traveling through Tokyo station, eki, was at or near the pre-pandemic level.

And when looking at the Haneda airport website and the domestic departures and arrivals, it appeared there were no or very few cancellations which have been very common since the pademic started.

Of course just becuase a JAL or ANA or Solaseed or any of the other discount airlines departed Haneda doesn't really indicate how full the planes were at 10, 20, 50 percent full. respecfully is not know. 

As we get more into January, more information about how many people actually traveled and if there was a significant increase in consumer spending during the New Year holiday period.

Have a nice day and be safe!