Japanese Economy Slowdown?

 Article Source: https://mainichi.jp/english/articles/20220812/p2g/00m/0bu/010000c

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TOKYO (Kyodo) -- Around 42 percent of major companies in Japan expect the country's economy to slow down over the next 12 months, up from just 5 percent one year ago, as they struggle to cope with surging commodity costs and the yen's weakness, a Kyodo News survey showed Thursday.

The survey of 114 companies, including Toyota Motor Corp. and SoftBank Group Corp., found that Japanese blue chips are becoming increasingly pessimistic about the country's economic outlook, up from 12 percent at the beginning of the year.

Meanwhile, those that believe Japan's economy will expand dropped to 55 percent from 90 percent one year ago, and 84 percent earlier this year, as concerns weighed on hopes for a gradual recovery from the COVID-19 pandemic.

Ideas:

Ripples are in the air that 2023 might be a recession year, so its no surprise that some or many Japanese companies are not so optimistic.

As commodity and energy costs continue to soar or remain high it can make many companies being to wonder when all of the challenges are finally going to end. 

Now add in the Japanese yen weakness, while good for exporters not so good for any company that imports products into Japan.

Japan's economy may expand but not at the rate that many want it to. For example it might not get back to 1.0 or 1.5 percent growth range in the future.

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With multiple answers allowed, 83 percent that expect the economy to slow down cited adverse effects of higher commodity prices, followed by 58 percent predicting sluggish growth or a decline in consumer spending.

Some 56 percent said the yen's weakness against the U.S. dollar and other major currencies would negatively impact the economy.

Stronger global demand has pushed crude oil and commodity prices up to historic highs as countries attempt to restart their economies, while Russia's invasion of Ukraine has further aggravated supply chain constraints.

Ideas:

One of the challenges of the Japanese economy is that companies and consumers just haven't experience this type of inflation for a very long time if ever.

As a result maybe some or many don't know how to overcome the challenges related to an increase in inflation.

Consumer spending is always a major challenge for the Japanese economy as consumer spending is never at the level of other advanced economies.

A weak yen has always been a positive for the Japanese economy but this time maybe it has become too weak.

As Japan is a major export economy, the weak yen, is an advantage to Japanese exporters as they can get more revenue for their products sold in the US for example.

You would think, that after two years, the oil markets would become more stabilized and OPEC and countries would be producing enough oil to stabilize the oil markets.

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Furthermore, the Japanese currency has been in a freefall against the U.S. dollar in recent months, hitting a fresh 24-year high last month in the 139 zone amid contrasting approaches in monetary policy between Japan and the United States.

The U.S. Federal Reserve has pushed for aggressive rate hikes as it battles 40-year high inflation in risk of a recession, while the Bank of Japan has maintained an ultraeasy monetary policy.

The Kyodo survey, conducted from mid to late July, covering leading companies in each sector, found 32 percent of them expect economic growth to be flat, while 10 percent forecast moderate contraction.

Ideas:

The difference in currencies has no doubt been a factor in the weakening of the Japanese yen.

Any time there are key rate increases my central banks know there are going to be some side effects and the big one is the possiblity of a recession, and key currency rate increases might cause a slow down in an economy.

The Bank of Japan might see these possible side effects and feel the Japanese economy is just not strong enough to offset any possible side effects, such as a possible recession.

So maybe they accept other side of effects of not increasing the key rate that the Japanese yen and the US dollar are not going to be congruent, meaning a strong dollar will cause the yen to weaken even more.

There probably is not going to a contraction of say minus one percent in economic growth but more likely growth might reach 1 percent or maybe at the most 1.5 percent in the future.

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Some 53 percent of surveyed companies believe there will be moderate growth, while 2 percent are hopeful of solid growth. None believed the economy would fall into a recession.

Among multiple answers from those that anticipate growth, 85 percent said they expect personal consumption to recover, while 77 percent predict normalization from the coronavirus pandemic.

While some companies said the BOJ's hard stance to maintain its ultraeasy monetary policy has caused the yen to weaken and push up import prices, 37 percent nevertheless believe its continuation is necessary.

Ideas:

So what are the trade-offs with increasing or keeping the rate as is. As the US continues to increase its key rate the trade off is going to be less economic activity and maybe a poossible recession in 2023 and the economic begins to slow down.

And then what are the trade-offs for the Bank of Japan to maintain its current policy and not increase the rate. The trade-off of course is a weakening yen, with continued inflation as compared to a possible recession in 2023.

But then, there might still be a possible slight recession in 2023 that maybe just can't be avoided as even the continued inflation challenge will continue to dampen consumer spending and business investment in Japan.

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A majority 30 percent said they want the dollar to hover around 110 to 120 yen.

The survey also found 39 percent of the firms believed the coronavirus should be treated in a similar manner to seasonal flu.

Although Japan's daily COVID-19 infection numbers have been hitting record highs in recent weeks, the government has not imposed restrictions on people's movement, while calls have been mounting that it should speed up its review of measures against the disease.

Asked about how best to deal with a potential electricity crunch, it found more than half supported the need to save power, followed by increased implementation of solar and wind power, and 39 percent backed restarting nuclear reactors.

Ideas:

The dollar is probably going to get even higher in the future and the Bank of Japan might have to do some kind of intervention but at the same time continue with its current policy.

Probably at this time, the covid situation, for most people, is just a flu like symptom and overall economic activity should not be dirubted.

Yes, just like the flu, there are always going to be some people with underlying situations that are going make the flu symptoms even worse and the same with covid symptoms.

The continued increase in energy costs as made the debate about other kinds of energy louder and again the idea of nucleur power has come back into the conversation.

Just how much political will do the nucleur power advocates have will be seen in the future if energy prices continue to increase and there is a continued energy crunch.

Have a nice day and be safe!