Japanese Economy in 2022: Updated Jan. 19

 Article Source:  https://mainichi.jp/english/articles/20220101/p2g/00m/0bu/026000c

Article:

TOKYO (Kyodo) -- The Japanese economy is expected to accelerate its expansion in fiscal 2022 following a sharp turnaround toward the end of 2021 as private consumption continues to recover thanks to subdued coronavirus infections.

Analysts predict the world's third-largest economy will see an annual real 2 to 4 percent growth in fiscal 2022 starting April, even though concerns remain about a COVID-19 resurgence and the lingering global semiconductor shortage.

After the economy shrank a record 4.5 percent in fiscal 2020 with the coronavirus outbreak, it began to pick up in the fall of 2021 as vaccinations progressed and economic restrictions were lifted.

Ideas:

It must be remembered as even if some parts of the Japanese economy continue to recover and expand, there might be many parts of the Japanese economy that are still not doing so well, such as the services sectors, which in its-self, is a multilayered complex sector, just like the rest of the Japanese economy.

Private comsumption or consumer spending might have continued to improve but with the continued increase of virus cases, specifically in the Osaka area and the Kanto area, consumer spending once again might see a decrease as consumers take a pause because of the number of cases.

For example on Jan. 18 there were 5,000 cases in Tokyo alone, which potentially has the potential to set consumer spending back from its surge in the fall and December.

The idea of a annual real 2 to 4 percent growth might have been a very reliable estimate, at the time the forecasters were cheking the data and looking at future conditions before the explosion of cases. 

But most likely a real 2 to 4 percent, might not be the best estimate if the virus situation continues to get worse and if Tokyo, Kanagawa, Saitama, and Chiba get the emergency measures they want to try and control the virus situation.

Which might mean consumers will not go out as much, restaurants will close early and so on, as economic activity in those areas will decrease, which will delay the economic growth the BOJ and the Japanese government hoped to see.

But at the same time, just maybe consumers and others might just decide to take "live with the covid" approach and not reduce any kind of regular activity which was done in the past, as most people have gotten the vaccination shots and the booster shot program is moving forward.

Article:

The government predicts a 2.6 percent growth in fiscal 2021, followed by a 3.2 percent increase in fiscal 2022. Among other major economies, growth in calendar 2022 is forecast by the Organization for Economic Cooperation and Development to reach 3.7 percent in the United States and 5.1 percent in China.

Economists say strong growth is expected especially in the first half of 2022 in Japan, thanks to restaurants and bars and other hospitality businesses returning to normal operations and the government's stimulus initiatives, including the "Go To Travel" domestic tourism subsidy program which it envisages resuming around February.

Taro Saito, executive research fellow at NLI Research Institute, said consumption, kept at subdued levels by the pandemic with increased savings, should lead to robust private spending going forward.

"As long as people can move freely, considerable spending can be expected," Saito said.

Japan's household assets hit a new record in 2020 and have continued to rise since, according to Bank of Japan data.

Ideas:

All that sounds very good, but again, most of the estimates were most likely made before the omicron situation hit Japan or became a major challenge for society and the economy.

But if the estimates are true, it just might mean "living with covid" is going to be the the approach in 2022, as societies and economies are jus going to get back to normal or a new normal as much as poossible.

And has been suggested some want to think of the omicron situation is just going to be more of a "flu like" situation and we just have to live with it and get on with our normal regular economic activity.

However, the "Go to Travel" situation probably is not going get up and running again most likely not until early summer if even that.

And it might not even be needed to stimulate domestic travel, as people can only stay in one place for so long and then begin to get out and about. So most likely by the the early or late spring domestic travelers might say enough is enough decide to go where they want to go.

As the savings level has increased a lot since the pandemic started that means there is a lot of pent up demand and a lot of potential spending ready and able to take off..

But maybe not just yet, as consumers again might take a little longer to finally get out and consumer spending really takes off in Japan.

Perhaps, just perhaps, and with an increase in wages as Kishida wants to see, might be enough to push the consumer spending/inflation up toward the 2.0 percent level that the Bank of Japan has been trying to reach for a very long time.

Article:

At the end of September 2021, Japanese households held a record 1,999.8 trillion yen ($17 trillion), with cash and deposits increasing 3.7 percent from a year earlier to 1,072 trillion yen. Assets held in securities were also higher, helped by rises in stock prices.

But economists say factors that stood in the way of the economic recovery through a large part of 2021 will not entirely go away in 2022. For one, the recently spreading Omicron variant of the coronavirus could dampen private spending, which accounts for more than half of the country's GDP.

Mizuho Research & Technologies, which estimates the annual growth rate at 2.7 percent based on the premise that the next wave of infections -- the sixth since the outbreak in 2020 -- will occur in summer, forecasts an annualized 2.9 percent contraction in the July-September period.

Saisuke Sakai, senior economist at Mizuho, said, "If a sixth infection wave is caused by the Omicron variant, we expect private expenditure to drop in early 2022."

Ideas:

All estimates and forecasts mentioned in this article are not exactly the same, which is normal as forecasters might see things a littlle different from each other and might use different set points or references for their estimates. 

The record level of cash and deposits, again, just might be what the Bank of Japan needs to see the consumer demand inflation level move toward the 2.0 percent level that the BOJ has been striving to reach for a very long time.

And an increase in wages, as Kishida wants, and if it happens also might help consumer spending increase just enough to move the inflation needle towards the 2.0 level.

But at the same time the omicron situation migh have some future effects on consumer spending, as it might slow down the bent-up demand as consumers have money to burn, or use in the economy.

In case some are concerned about how long the omicron situation might last scientists in South Africa have reported they are seeing as signficant drop in cases after just 8 weeks when it was first reported, which might be good news as maybe the omicron situation is not going to be a bad as expected or not as bad as the delta situation, although there were 5,000 cases reported in Tokyo on Jan. 18.

So most likely consumer spending is going to drop in the first quarter of calendar year 2022, but most like come roaring back in time for the hanami viewing period period in the spring, along with domestic travel seeing some kind of surge as domestic consumers/travelers want to get out and about.

Article:

The highly-contagious Omicron variant has already caused a resurgence of infections in the United States and some European countries, forcing them to restrict social activities and cancel festive events. While the total number of confirmed cases involving Omicron remains low in Japan, community transmission is showing signs of increase in urban areas including Tokyo.

But the decline in spending will likely be smaller than during previous waves when states of emergency were issued to ask people to stay at home and restaurants to close earlier, Sakai said, as the government is pushing its so-called "vaccine and test package" to support economic activities.

Under the program, people certified as vaccinated or with negative tests would not be discouraged from traveling across prefectural borders and restaurants would be allowed to serve alcohol even during states of emergency if they check customers' vaccine and test statuses.

Ideas:

While the US and Europe are restricting some activities most likely Japan is going to try and maitain some sense of normalcy while maintaining some sense of safety measures but at the same time understanding that small and medium sized businesses along with many service sector businesses can't have any more restrictions in the economy, in order to survive.

As most people are vaccinated and the booster program is progressing, its not the spring of 2020 so there might not be any need to completely put any more restrictions as needed on society and the economy, even though there were 5,000 cases alone in Tokyo.

As sources have mentioned companies in the Tokyo area are already asking their employees to work from home without the government having to say anything.

So its not like the spring of 2020 again as the 5th or 6th wave companies and society know what to do to protect themselves. 

In South Korea, for example, the government tried to implement a vaccination passport, app, system for large stores, department stores, and supermarkets, but it was taken to court and the court said it was not legal.

However, customers/consumers still have to show the app vaccination passport in restaurants, coffee shops and places of similar activity.. Restaurants have to close by 9 PM and they can be fined if caught open. There were/are around 5,000 cases in all of South Korea. 

Article:

Sakai said the economy may also enjoy stronger-than-expected boosts from the benefits of oral COVID-19 drugs developed by Pfizer Inc. and Merck & Co. and an expansion of vaccine use to children.

A global chip shortage will also continue to be a concern, economists say.

A recent gradual recovery in car production is a positive development for the Japanese economy after automakers cut output since summer due to supply chain disruptions in Southeast Asia.

Many economists say the speed of the auto production recovery will remain mild, however, as global chip demand is expected to continue outstripping supply even if the COVID-19 situation in Southeast Asian countries, a key manufacturing hub for automakers, keeps improving.

Ideas:

An oral vaccination is a very good idea. It would be good if there was an oral vaccination from the very beginning, but the main problem of course is how many people would use it or do it if not monitored. Or for example, they take the oral pill at at pharmacy or clinic or hospital in front of the person at the place and then can get it registered on their app and or a document showing they took the vaccination pill.

Back in the summer of 2021 a past BBC article mentioned that a German car company CEO had suggested the chip shortage could last for two years. But the article didn't say what the severity or the depth of the chip shortage over the two year period. So most likely the current chip shortage potentially might not be as bad now as when it first started.

But just how bad can it be just recently Toyota became the top car seller in the US as it past GM for the first time ever. It was reported that GM held the top position as the top car seller in the US since early part of the 20th century.

Even if its only a mild recovery that is better than nothing as the car manufacturing sector is a large part of the Japanese economy and is a significant part of Japan's global exports.

Article:

"Even if automakers could boost production briefly, it will be difficult to keep doing so to get back to their normal output level," said Yasunari Tanaka, a researcher at Mitsubishi Research Institute which forecasts the chip drought will be resolved in 2023 or later.

Chip industry body World Semiconductor Trade Statistics forecasts semiconductor demand will grow 8.8 percent to a new record of more than $600 billion in 2022 following a 25.6 percent leap in 2021.

Domestically, chipmaking capacity has surpassed its pre-pandemic level and little room is left for additional expansion, according to MRI.

"I think it has become a main scenario, rather than a potential risk, to expect a prolonged global semiconductor shortage," Tanaka said.

Ideas:

Most likely getting back to normal or production before the pandemic might not happen for a while as there seems to be a lot of stops and starts related to car production.

Semiconductor chips are now used in almost all electronics or all electronic devices, so there is definitely as surge in demand as more and more electronic products are being used globally.

So car companies and chips manufacturers are going to feel constrained in meeting demand as the demand for chips keeps increasing globally.

Yes, a prolonged shortage now may be nothing more than a surge in demand that manufactuers are unable to match at the present time or even in the near future.

This might be the new normal for any company that needs chips for their products.

And as countries and companies globally race to find the next rare-earth mineral needed for semiconductor chips, the shortage is going to continue on for who knows really how long, or maybe this is the new normal and semiconductor chips.

Obviously there is a need for more semiconductor manfacturing plants such as the Taiwan company that is going to build more plants in Japan if reported correctly. It might help some but most likely there is the need for more than plant in Japan and elsewhere.

Article:

The currency market is another headache for the Japanese economy, Tanaka said. Although export-oriented automakers and chip-related companies can benefit from the recent weakness of the yen against the U.S. dollar, it is a headwind for Japan given its reliance on imports of natural resources such as crude oil, he said.

Transportation and restaurant businesses, already hard-hit by the pandemic, are major consumers of crude oil and may remain under pressure, he said.

Even though the Japanese economy is set to recover to its pre-pandemic level in early 2022, it will take a full year or longer to return to its recent peak marked in the April-June quarter of 2019, which was before the consumption tax hike to 10 percent from 8 percent later that year.

"For 2022, the main goal for the Japanese economy would be achieving a 'with-corona' new normal, striking a balance between keeping the economy running and curbing infections," Mizuho's Sakai said.

Ideas:

The economy, as complex as it is, is always going to have some postives and negatives operating at the same time.

As Japan exporters gain the benefits of a weak yen, the positives, Japanese importers have to pay more for what the import, the negatives.

Unfortunately, unless a government intervens and tries to control a currency and might then be considered a currency manipulator, there is not much a government can do when most currencies globally are somewhat free floating meaning they change as the global currency market changes.

So while Japanese exporters will continue to seem the positives of a weak currency, meaning get more from the sales of their products in the US, the importers need to find ways to offset the increase in prices of the products they buy from the US for example.

Of course one way is to pass on the increased costs to the next in the supply chain, whether other companies and or consumers.

But of course Japanese companies are very reluctant to pass on their costs, or have been until recently. Some companies or businesses, as reported, have already begun increasing their prices but not enough to see a backlash from consumers overall at this time. 

And the oil/energy markets just hit an eight year high which willl not be good for any country or any company in the near future.

Yes, after two years the idea of living "with corona" is the only strategy that makes sense at this time. No economy no society in Japan or anywhere can go on as is. So the only strategy is a new normal of living with the virus and try to keep all economies, includinng the Japanese economy as open as possible, while doing what is needed for a safe society and a safe and functioning economy.

Have a nice day and be safe!