Japan Economic Assessment:

 Article Source: https://mainichi.jp/english/articles/20220620/p2g/00m/0bu/036000c

Article:

TOKYO (Kyodo) -- The Japanese government on Monday kept intact its key assessment that the economy continues to recover from the coronavirus pandemic fallout, but warned of the impact of a prolonged war in Ukraine and slowing economic activity in China.

Regarding the current state of the Japanese economy, the monthly report said it "shows movements of picking up," maintaining the assessment for the third consecutive month, citing improvements in private consumption and business investment.

As for the economy's prospects, the report said the recovery is expected to be supported by measures against infectious diseases and normalizing economic and social activities, without specifically mentioning the word "coronavirus" after dropping it from its assessment last month.

Ideas:

The Japanese economy may well be on the way to some kind of recovery but most likely there are some or many parts of the economy that are far from being where they were before the pandemic.

And now add in the Ukraine situation along with continued increased material and energy costs and the weak yen compounding the price increases and there are still a lot of challenges for the Japanese economy.

Business spending and cosumer spending might be picking up but where are they in relation to the spending of 2019 and if not can we guess when business spending gets back to some kind of normal.

Consumer spending is a different entity as consumer spending as never been at the level of other advanced economies. as Japan and Japan society, for the most smart, can't be characterized as a free spending economy like for example the US economy and US consumers.

Article:

By component, it said private consumption "shows movements of picking up," retaining the expression for the third straight month, as spending continues to recover in the services sector including dining out and travel to nearby areas, a government official said.

But the government downgraded the view on industrial output for the first time in seven months, saying any pickup is "pausing" due to weak production of electronic components and construction machinery amid a shortage of semiconductors.

Meanwhile, it revised upward the state of housing construction that it is becoming "solid," backed by increasing demand for condominiums, the official said.

Ideas:

Private spending might be picking up, which is good, but is it sustainable with all of the related price inflation at supermarkets, restaurants, stores and of course energy prices in the homes.

Private spending as always been somewhat of a weak variable in the Japanese economy as Japanese spenders just don't spend like their western counterparts. 

So while advanced economies like the US can depend on consumer spending to spur to economy and help it grow, the BOJ can't depend on Japanese consumers to do the same.

Industrial production is never a complete linear upward trend and there are always some situations where there are pauses in production.

Construction also might be solid but just does that really mean and are there going to be enough home buyers to meet the need or demand for the condominiums that are being built

With raw material and energy costs increasing it will also mean the price of new homes is going to increase. Is the housing market in a sustainable trend or is just a temporary increase that the housing market is seeing at the moment.

And then ther is always the chance for a housing market bubble, meaning becuase of increased material and energy costs along with some kind of demand are prices going to get unnaturally high for the market which could cause a housing markeg glut of unsold homes in the future.

Article:

It also upgraded the assessment on imports, saying the decline has halted, reflecting increased domestic demand for crude oil, liquefied natural gas and coal, according to the official.

The government said consumer prices "have been rising recently" for the second month in a row after data showed inflation in April climbed 2.1 percent from a year earlier, the fastest pace in seven years, stemming from higher commodity prices and a weak yen.

Ideas:

The demand may have increased for imports but what about the price of imports with globall material costs sky-rocketing and energy prices too becoming too high. 

Someone has to pay for the increased import costs and most likely the importers alone are not going to pay and they most likely are going to pass on some or all of their costs.

Again it must be noted that the increase in consumer prices is not because of an overall increase in conumers spending in the Japanese economy. Consumer prices are increasing because whomever are passing on their increased costs onto consumers in relation to supermarkets, restaurants, and so on.

This kind of inflation is supplier inflation being passed on to the next in the supply chain and eventually the final consumer at the department stores, the restaurants, the cofffe shops, the supermarkets and so on.

So the BOJ needs to make a clear distinction and not call is exactly consumer demand inflation. Yes they do say its from commodity prices etc.

But as far as the BOJ's idea of reaching its goal of 2.0 percent inflation related to consumer demand or consumer spending its not there yet.

Article:

Looking ahead, the government noted "full attention should be given to downside risks" due to rising raw material prices, supply-side constraints and fluctuations in the financial markets, citing the ongoing conflict in Ukraine and suppression of economic activities in China amid COVID-19 restrictions.

The office kept its assessment on the world economy as well, saying that it appears to be "pausing" in some parts but is picking up as a whole.

Ideas:

The use of the word "pause"is most likely a good phrase to use and yes, the global economy the global marketplace might not be where it should be but with all of the challenges at this time a pause should not be a surprise.

There are just too many kinks or negatives that keep the global economy from moving at full capacity at this time and maybe even its going to be same for much of 2022.

The situation in China might not improve any time in the near future and for the most part the Chinese economy is slowing down, which it has been doing for awhile.

And then now the Chinese policy of shutting everything down when there are some virsu cases doesn't help any business in China, whether Chinese or foreign and certainly doesn't help supply chains the run through China.

So yes the Japanese economy might be seeing some growth but there are just too many distractions at this time.

Have a nice day and be safe!