Japan GDP Upgrade: Updated Jan. 7

 Article Source:   https://mainichi.jp/english/articles/20211223/p2g/00m/0bu/022000c

Article:

TOKYO (Kyodo) -- The Japanese government on Thursday upgraded its growth forecast for the domestic economy in fiscal 2022 to a real 3.2 percent from the previously estimated 2.2 percent, expecting the pace of recovery from the coronavirus pandemic-caused slump to pick up following a weaker-than-anticipated improvement in the current year.

The projected pace of growth in gross domestic product, the total value of goods and services produced in the nation, will be used as the basis for the government's tax revenue estimates as it draws up the draft budget for fiscal 2022 starting April, which Prime Minister Fumio Kishida's Cabinet is set to approve on Friday.

The initial budget is expected to total around 107.6 trillion yen ($950 billion), a record high for the 10th straight year, according to government sources.

Ideas:

It must be remembered that a forecast is nothing more than a guess, and no-one can actually predict what is going to happen in the future. Of course its good to review historical information and trends and attempt to use statistical programs, based on past experience, to predict what might happen in the future, but again, its just a guess and nothing more.

For example, already on Jan 7, the virus situation and the omicron variant is already causing challenges in some parts of Japan. And most likely its going to fully spread to the Osaka and Tokyo areas, which most likely is going to put a strain on the Japanese economy.

A weaker-than-anticipated improvement for 2022, using a the regular calendar and not the fiscal calendar, looks to be the norm for 2022 and if the omicron situation explodes like the delta situation did in August 2021, reaching 3.2 might not be achievable. 

Article:

Due to the prolonged economic fallout from the pandemic on the back of repeated resurgences of infections, the office cut the GDP growth rate projection for the current fiscal year from 3.7 percent to 2.6 percent.

The government had originally estimated Japan's GDP in 2021 would return to its prepandemic level in the October-December period of 2019, but the goal will likely be pushed back to March, a government official said.

The size of GDP in real terms in fiscal 2022 is expected to reach a record 556.8 trillion yen, topping the previous high of 554.3 trillion yen in fiscal 2018, according to the official.

Ideas:

Everything right now is up in the air, meaning with the new omicron situation, forecasts and projection are now just guesses as no-one knows what is going to happen the next couple of months as Japan and globally it might be a repeat of the summer of 2021.

Of course government and agencies want to show something postive but after almost two years of the virus situation, they will have to continue their estimates almost on a weekly or monthly basis as the situation changes.

But at the same time, after two years of the virus situation, perhaps businesses and society have learned to live with the virus situation and maybe just maybe there will be some kind of "new normal" or more specifically a "living with covid" without having to resort to severe emergency measures that potentially can shutdown parts of the economy.

The idea that the Japanese economy can return to the pre-pandemic level of economic activity is maybe too much to achieve at this time. Perhaps in April or even the summer, if things begin to settle down, the Japanese economy will be back to more of a pre-pre pandemic level than it is right now.

Article:

The GDP growth forecast for the next fiscal year is slightly higher than the average 3.0 percent increase estimated by private-sector economists in a survey earlier this month by the Japan Center for Economic Research.

In nominal terms, unadjusted for inflation, the world's third-largest economy will likely expand 3.6 percent to a record 564.6 trillion yen in fiscal 2022, upgraded from an earlier projection of 2.5 percent, the government said.

Private consumption, which accounts for more than half of the Japanese economy, is expected to increase 4.0 percent in the next fiscal year, unchanged from the previous estimate.

Ideas:

Most likely the estimates and forecasts were alll calculated before the omicron virus situation hit globally. As such new estimates an new forecasts are going to have to be re-calculated to include economic activity during the now omicron period as it looks like Japan is going to have a full-blown omicorn situaton like the delta situation in August.

The phrase unadjusted for inflation is an interesting economic concept that is most appropriate for the US and the EU, but as has been reported over and over in the Japanese media and government reports, including the BOJ, inflation is Japan is so low, it should have no affect on how the estimates are reported, nominal or real.

Private consumption or private spending has always been a concern for the Japanese economy. Not to disparage anyone with what they think but an estimate of 4.0 percent seems a little high, unless whomever is expecting that companies in April 2022 are going to increase wages above the 3 percent that Kishida wants to see. 

If wages don't increase significantly in April of 2022, or if any at all, consumer spending most likely is not going to reach a 4.0 percent growth. There are just too many external variables now which are affecting and will continue to affect households, families and even single consumers now with home energy prices incresing, gasoline prices increasing, supermarket prices increasing and even some restaurants increasing their menu offferings.

Article:

Capital expenditure is now estimated to rise a real 5.1 percent, higher than the July forecast of a 4.2 percent expansion.

Exports in fiscal 2022 are forecast to climb 5.5 percent, following expected growth of 11.4 percent in fiscal 2021, benefiting from the global economic recovery.

Ideas:

Capital expenditure or spending is another area that might not reach a real 5.1 percent given the new omicron situation. But at the same time, businesses might be tired of waiting decide we need to move we need to invest now while we can.

Exports are always a bright spot in the Japanese economy as Japan is an export powerhouse. Even a 5.5 percent increase will help the Japanese economy. 

Of course the weak Japan yen, which just got even weaker this week against the US dollar will bring in even more revenue into the Japan current account, which has to balance against the increase in prices that Japanese importers have to pay for because of the weak yen.

But Japan needs to be careful that the omicron situation doesn't turn into another summer of 2021 situation with supply shortages, chips shortages, logistics prices increasing and so on.

So the future is not clear at this point as many things seem to be up in the air because of the omicron situation.

Have a nice day and be safe!