Japanese Economy:

 Article Source: https://mainichi.jp/english/articles/20221115/p2g/00m/0bu/012000c

Article: 

TOKYO (Kyodo) -- Japan's economy unexpectedly shrank at an annualized real rate of 1.2 percent in the July-September period, the first contraction in four quarters, government data showed Tuesday after imports surged and private consumption was sluggish as accelerating inflation dampened sentiment.

The growth figure came against the average market forecast of a 1.2 percent expansion in a Kyodo News survey, boding ill for the government of Prime Minister Fumio Kishida, which recently drew up an economic package to ease the pain on households from soaring inflation.

Real gross domestic product, adjusted for inflation, fell 0.3 percent from the previous quarter, according to preliminary data released by the Cabinet Office.

Ideas:

It's not a surprise that Japan's economy shrank 1.2 percent as most likely inflation is constraining any real economic growth as consumer spending and other types of spending are constrained.

It seems as if, like other countries, that the Prime Minister doesn't really know what to do related to curbing inflation.

Private consumption or consumer spending will probably remain sluggish for a while until inflation is reduced to the point that consumers feel good enough to spend like they used to before the pandemic.

Consumers only have so much extra income or disposable income and they are most likely now very cautious on what the spend their extra income on.

Article:

The contraction, coming only three months after Japan saw its GDP recover to pre-pandemic levels, underscores the fragility of the world's third-largest economy with its potential growth rates remaining persistently low.

Accelerating inflation, which has topped the Bank of Japan's 2 percent target, has weighed on consumer sentiment. It comes at a bad time for Japan, whose economic recovery has been slower compared with its global peers.

A gain in imports can work as a negative for GDP, which measures the total value of goods and services created in a country. Surging energy costs, exacerbated by Russia's war in Ukraine, have dealt a blow to Japan's economy.

Ideas:

An economy is very complicated and very fragile as all parts of an economy don't grow exactly the same. So while some parts might have improved other parts might have seen a decrease in growth.

Even if the Japanese economy grows in the 1 percent range that is still relatively good for an economy that doesn't get above percent growth very often.

It must be remembered that the BOJ's 2 percent inflation target has more to do with consumer demand and consumer spending than wholesale price increases that are being passed on to the next in the supply chain including the final consumer.

Japan's economic growth, again, has not kept pace with for example South Korea, China, or even the US in decades. 

Yes, imports can be a negative related to the current account especially as imports prices continue to increase. 

Surging energy costs along with the Japan yen being out of balance with the US dollar doesn't help related to import prices.

Article:

Imports jumped 5.2 percent, faster than exports which grew 1.9 percent. Seen as a temporary factor, a sharp increase in advertisement-related service payments to overseas firms also boosted the imports figure, a Cabinet Office official said.

"Energy imports gained and the sharply weaker yen boosted import prices. The easing of supply bottlenecks overseas also helped. Higher imports are not all bad, because they can also reflect the strength of domestic demand," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

"Still, there is no doubt that the economy is also headed for a slowdown," Kodama said. "The yen's depreciation was so rapid recently that companies have not been able to fully pass on higher costs, so more price hikes are coming. That would be a negative for consumers, and private consumption will likely take a hit in the current quarter.

Ideas:

Exports are usually a positive for the Japanese economy as the weak yen drives up the price/revenue for Japanese companies, as long as consumer demand is there globally.

Imports usually are seen as important as Japan is considered a resource weak country and has to import much of what it consumes. Of course the weak yen and the imbalance with the Japanese yen has increased the prices of imports recently.

And yes, if consumer demand or supplier demand is there more imports will be brought into the country over time.

As inflation continues to increase reluctant companies are trying to figure out how much and how often should they pass on their increased costs to also reluctant whomever is next in the supply chain.

Private consumption or consumer spending again will probably slow down even more as their disposable or extra income is decreased even more from inflation including companies continuing to pass on their costs to the next in the supply chain.

Article:

In the three months to September, domestic demand was supported by the lifting of COVID-19 restrictions that had weighed on economic activity.

Private consumption, accounting for more than half of the economy, increased 0.3 percent. It marked the fourth straight quarter of gain as people stepped up spending on dining out and other services, but consumption still lacked vigor despite expectations of pent-up demand.

Capital investment, another key component of domestic demand, grew 1.5 percent as companies sought to boost output capacity and build factories for products, such as semiconductors. Public investment rose 1.2 percent.

Ideas:

As the Covid restrictions were lifter consumers were happy to be out and about again. But then as time went on the inflation situation began to sink in and most likely consumer demand hasn't reached its potential.

Consumption of consumer spending, or the time being, is not going to reach expectations as long as inflation remain high.

Capital investment too, while seeing some growth, might not its potential as long as consumer demand is not where is should be due to high inflation.

Yes, there is demand for whatever uses semiconductors, which is almost everything electronic these days, but with high inflation consumer demand is not where it should be.

Article:

Japan's economy took a turn for the worse after it grew an annualized real 4.6 percent in the preceding quarter.

Toru Suehiro, chief economist at Daiwa Securities Co., said Japan's economic growth rates have been susceptible to swings in COVID-19 waves.

"The October-December quarter should be a period of growth, but the 'eighth wave' of COVID-19 infections inevitably means that there is a possibility of a dent in the growth rate in January-March," Suehiro said, forecasting that real GDP will grow 1.7 percent for fiscal 2022.

Ideas:

An economy is made up of many different sectors and industries and as such they never grow at the same rate. Some might continue to grow very fast and some might grow very slowly and some might decrease in growth, all at the same time.

The 4.6 annualized growth most likely was the result of less growth in the quarters before and then growth actually began to get back to normal for the Japanese economy.

A 1.7 percent fiscal growth for 2022 actually would be in the range for normal economic growth for Japan, actually, it would be a little higher than usual but still good.

Article:

Economists say pent-up demand is widely expected to support the economy, along with a recovery of inbound tourism, which the government is counting on as a visible benefit of the feeble yen that has otherwise led to soaring import costs.

Still, the outlook remains uncertain, as aggressive monetary tightening by major central banks, including the U.S. Federal Reserve and the European Central Bank, has raised fears of a global economic slowdown.

Growth in China, a major trading partner for Japan, is also expected to be hampered by its zero-COVID policy and property woes.

Ideas:

Economies being linked with other economies, which is the situation today in the global economy, has its advantages and disadvantages.  For example while the US and the EU continue to increase their rates the BOJ continues to keep its rate low, which means a disadvantage for Japanese importers and others due to the variance between the US dollar and the Japanese yen.

The Chinese situation is causing challenges globally as some or many countries are re-thinking whether they want to remain in China for production purposes. 

As tourism begins to improve and more international tourists enter Japan it can only help. But it's a long way from the 32 million international tourists that entered in 2019. 

But the bulk or a lot of the tourists were from China which has yet to allow these own people to travel which still could be a challenge as maybe other countries are going to have some restrictions on Chinese tourists such having a negative test before entering a country such as Japan or South Korea, or the US.

Article:

Swimming against a global policy tightening tide, the BOJ has not wavered in its pledge to keep an ultralow rate policy. Governor Haruhiko Kuroda has said the central bank needs to keep tabs on the impact of global rate hikes on financial markets, but the country's relatively slow recovery from the COVID-19 fallout means the economy still has more room for growth.

The BOJ's dovish stance has been blamed for accelerating the yen's depreciation that prompted in September Japan's first yen-buying intervention since 1998.

Nominal GDP shrank 0.5 percent, or an annualized 2.0 percent.

Ideas:

The Bank of Japan which thinks that the Japanese economy is not yet strong enough for the normal intervention of increasing the key rate. And maybe for good reason as a key rate increase might affect those who need new loans, those who already have loans, which could potentially reduce spending in the economy even more than what it is now.

At this point maybe the BOJ feels its come this far with rate situation as it is and any rate increase might actually hurt more than help the Japanese economy overall, so the idea is to just maintain the same policy and ride out the high inflation situation.

The BOJ propally feels it has no choice but the just maintain and just try to keep the current situation as it is until inflation begins to level off or their is a significant decrease in inflation.

Have a nice day and be safe!