Japan Govt. Economic Vew: Updated Feb. 1

 Source Article:  https://mainichi.jp/english/articles/20220118/p2g/00m/0bu/059000c

Article:

TOKYO (Kyodo) -- The Japanese government on Tuesday retained its view that the domestic economy remains on a recovery track but warns of downside risks from a recent surge in infections with the Omicron variant of the coronavirus.

The Japanese economy "shows movements of picking up recently as the severe situation (of economic activities) due to the novel coronavirus is gradually easing," the Cabinet Office said in its monthly assessment report for January. In December the outlook was upgraded for the first time in 17 months.

But the report said close attention should be paid to a potential "further increase in downside risks" from a resurgence of new coronavirus cases, supply-side constraints and higher raw material prices.

Ideas:

The Japanese economy may have been picking at the time of this article but the virus situation has gotten worse over the past few weeks.

How exactly is the omicron situation going to affect the overall economy much less specific sectors such as the services sector which has been under constant stress the the spring of 2020.

As of last report, hospitals are now nearing the dangerous 50 percent occupancy rate. And last report there might be up to 400,000 people recovering at home. 

But reported yesterday or today Prime Minister Kishida is not yet ready to declare emergency measures for Tokyo depiste Tokyo having record numbers too.

Part of it is course is to keep the econony moving as smoothly as possible,without too many disruptions. Another reason might be not to cause too much panic as there are different reports on just how serious or severe the omicron virus is compared to the delta virus seen last August.

Supply side contraints and higher raw material prices are weighing heavily on some sectors and companies and they decide what to do about higher prices and maybe supply shortages at the same time.

Article:

The office had also cautioned about a supply crunch and rising prices in the previous report but the warning of the downside risks from the virus situation was the first since September, when the previous state of emergency over the pandemic was still in effect in some prefectures including Tokyo. It was completely lifted nationwide on Oct. 1 following a decline in virus cases.

The office maintained its evaluation for private consumption, saying it is "picking up recently," after upgrading it for the second straight month in December.

A government official said at a press briefing that the recent virus spread has not had a major impact yet on consumer spending.

Ideas:

Supply side contraints again are causing some challenges for some companies. For example Toyota, every month, seems to change what is says, saying all is OK now, to we have to reduce production in some plants because of chip shortages.

So if Toyota is seeing supply side shortage, most likely other manufacturing firms are feeling the same pressure.

And then add in increasing energy prices for most if not all companies and no doubt the once stabel manufacturing industry is feeling a lot of challenges at this time.

Consumer spending might have seen a spike in December and early January from the holiday season and the New Year week long annual holiday but as the omicron situation is getting worse it will be interesting to see if concumers spending remains positive or decreases as less consumers spend due to the explosion of the omicron cases.

But just maybe as most have been vaccinated they don't feel as worred about the omicron situation and continue to go about spending as usual.

Article:

"But we need to keep monitoring its possible impact on the economy," the official said.

The latest economic assessment comes as the nation has been seeing a rapid increase in daily virus cases close to the highest level since the year-end and New Year holidays on the back of the spread of the highly contagious Omicron variant.

The government has yet to issue a fresh state of emergency but three prefectures were placed under a quasi-state of emergency earlier this month and more are expected to be added soon.

The measure in expanded areas could dampen consumption harder, with more dining establishments becoming subject to restrictions such as shorter business hours and a ban on serving alcohol.

Ideas:

As Japan hit a record of 80,000+ cases the Japanese government might be under pressure to place more prefectures under some kind of emergency measures. But again, Prime Minister Kishida has not made a decision or is delaying placing Tokyo under any emergency measures.

Most likely the Prime Minister and the Japanese government is trying to find ways to maybe just ride out the omicron situation if its percieved as being weaker than the delta virus and as most citizens in Japan have already been vaccinated.

But at the same time, as of this writing, SDF which operated  some vaccination sites in Tokyo and again is going to operate the vaccination booster sites are beginning to get up and running as the pressure for booster shots in growing.

Hopefully there won't be any restrictive measures which might decrease any economic activity in Tokyo or any other places, and the services sectors has now had to deal with 2 years of on an off restrictions.

But as was reported last fall and early winter, some or many restuarants, for example, were ignoring the emergency measure suggestions as they said they can't survive any longer with the emergency measures.

So most likely if Prime Minister Kishida does put Tokyo under some kind of emergency measures, maybe many or some restaurants are going to ignore the suggestions and try to operate as normal, because if they do they won't survive the pandemic.

Article:

By component, the January report revised upward its view on industrial production for the first time in 14 months, saying that it "shows movements of picking up." The previous assessment said that it "appears to be pausing for picking up."

The official said that the revision reflects a rebound in auto output from a slump caused by a global semiconductor shortage and a disruption in parts supplies from Southeast Asian countries due to restrictions on economic activities there.

Assessments of other major components were unchanged. The office said that exports are "almost flat," and business investment "appears to be pausing for picking up."

Ideas:

Industrial production has been on some kind of roller coaster series of ups and downs during the pandemic because of the chip shortage, other supply shortages and other challenges.

Exports might appear to be flat for several reasons. One reason might be that auto exports makeup for about 20 percent of Japan's exports. So as car companies have had to reduce their production in some of their plants it might have reduced Japan's overall exports.

At the same time, as with any economic activity there might be some seasonal lags or periods of strong growth, periods of just normal growth, some periods of flat or almost no growth, and even periods of negative growth such as in the spring of 2020.

But its important to remember that the Japanese economy is more than exports even though exports seems to get a lot of the news.

Most likely exports overall in the Japanese economy might be no more than 20 percent of Japan's GDP which means the domestic economy makes up 80 percent of Japan's GDP.

For example in South Korea, exports are estimated to be 50 percent of its GDP. The reason for as much as 50 percent is Japan has a relatively small population for the size of its major companies which can't compete or survive just selling domestically.

And basically because in the 50's, 60's and 70's the South Korean economy was so weak with very little domestic consumer spending, South Korean companies had no choice but to produce and sell their products globally.

But its both a positive and a negative. When the global economy or world trade is growing South Korean companies do very well of course, which means the economy is growing. But if world trade and or global demand slows down, just as in the spring of 2020, the economy doesn't do so good.

The South Korean government knows its got a problem related to too much reliance on exports at the expense of the domestic economy, but it doesn't know how to balance out the economy yet between exports and the domestic economy.

Unfortunately sometimes large companies have too much market power which might show up in forcing smaller suppliers to give the prices on supplies that the big companies want which of course means smaller supplier companies can barely survive.

Japan doesn't have the same challenges as its economy, like Germany for example, is a more balanced economy and doesn't need to rely only on exports for its economic growth.

But like South Korea, there have been reports suggesting that large Japanese companies and smaller supplies sometimes have the same challenges.

And compared to South Korea, which has an unbalanced economy, which is tilted toward big companies, Japan has  more balance between large, medium and small sized companies.

Yes like anywhere else, South Korea has more small and medium sized companies but as far as economic output is concerned most of the output is with the large companies, but in Japan it seems to more balanced between large, medium, and smaller companies.

And finally the idea of pausing for a pickup in investments, again its not always a linear or straight line progression of growth, as there are periods of srong investments, periods of low growth, and periods of no growth.

For example companies might be waiting for the new fiscal year to begin in April 2022 to begin a new round of fresh investments.

Have a nice day and be safe!