Bank of Japan and Economic Assessment: Updated Oct. 25, 2023.

 Article Source: https://mainichi.jp/english/articles/20230710/p2g/00m/0bu/023000c

Article:

TOKYO (Kyodo) -- The Bank of Japan on Monday raised its economic assessment for three of the country's nine regions following strong private consumption amid the easing of COVID-19 curbs.

The upgrades reflect stronger demand for services since Japan changed its legal classification of COVID-19 to the same category as seasonal flu in May. A revival in inbound tourism has also given the economy a boost.

Ideas:

Those areas of Japan, with large populations, there will be more economic activity such as consumer spending and business investments. 

Of course the challenge is what about the other regions and how to improve their economic status. 

Services during the pandemic, of course, was hit hard by the losses of revenue and customers. Maybe people were afraid to go to places and do things during the pandemic which hit the services sector more than any other sector.

International tourism is a major driver of the Japanese economy as it brings in extra economic activity and extra consumer spending in the Japanese economy.

Of course now that China has opened up again the millions of Chinese who want to travel will be going to Japan to spend as much as they can.

Article:

Despite higher commodity prices, the nine regional economies were "either picking up or recovering moderately," the BOJ said in its quarterly Sakura report.

The three regions the BOJ was more optimistic about were Tokai, where Toyota Motor Corp. is headquartered, Chugoku and Kyushu-Okinawa. Tokai was the only region that saw its view on output upgraded.

Ideas:

Commodities these days might be considered everyday needs of products and might be seen as needs and households might feel they don't have a choice but to buy them as needed, despite the increase in prices.

It's interesting that Tokyo and and Osaka were not included in the regions overall or were not mentioned directly in terms of improved economic activity, although the Tokai region might be considered part of Osaka, a large metropolitan area.

It would be interesting to see the variance in prices from region to region and and to how consumers in each region have responded to increases in prices.

Another variable would be the income level of each region compared to each other and how they have responded to the increase in prices in Japan overall.

Article:

The BOJ's views on the remaining six areas, including Kanto-Koshinetsu, which centers on Tokyo, remain unchanged.

Japan's economy expanded from January to March, the second straight quarter of growth, with economists expecting modest gains for the April to June quarter. Aggressive interest rate hikes by the U.S. Federal Reserve and other central banks, however, may slow global economic growth, a negative factor for Japanese exporters.

Ideas:

Most likely the Tokyo/Kanto region has had normal economic growth or relative near normal growth and maybe didn't see that much change from the pandemic and or the region recovered quickly as the pandemic now seems like years ago.

Expecting modest gains is a good way to keep expectations low as to not cause concern if the economy doesn't grow as much as expected.

Of course the situation in the US and Europe with interest rate increase might have an effect on Japanese exporters as interest rates have a way of depressing consumer demand and business spending.

Japanese exporters might need to lower their yearly estimates and expect lower sales for the rest of 2023.

Article:

The assessments on private consumption were raised for five of the nine regions, underscoring strong pent-up demand in the restaurant, dining and tourism sectors.

Private consumption has been a bright spot for the economy despite rising prices of everyday goods cooling household sentiment.

Ideas:

Private consumption or consumer spending has always been a less than good area for Japan as Japanese consumers are, for the most part, considered savers, and not big spenders like US consumers.

But no doubt the services sector in Japan was hit hard with layoffs, loss of revenue and sales as customers stayed home and ate their lunch and dinners at home.

But now that the pandemic is long gone, or almost long gone customers are back in the restaurants and stores and with pent-up demand in full force it might be temporary driver of economic activity as long as inflation doesn't get any worse.

Inflation eventually might cause households to begin to cut-back on some of their spending over time and the novelty of getting out again has worn off.

Article:

Still, many regions cited concerns about consumers becoming more frugal due to rising prices of everyday goods, according to the report.

Japan's inflation has remained above the BOJ's 2 percent target for more than a year due to higher energy and raw materials import costs.

Ideas:

Most central banks prefer inflation to be in the 2 to 4 percent range as they feel that is a manageable level. 

But maybe even 2+ percent is too much for some income groups as they have started to cut-back on some purchases as needed and or looked for substitutes for some products.

The lower income, groups most likely are on fixed income levels and even a 2 percent increase in inflation might affect their food buying habits as the lower income groups spend more on food than the upper income groups which of course have a lot of space or extra income.

Of course inflation is still a relative area of many households and for one maybe they don't feel inflation or notice it that much but for some it could be significant area of stress where less extra income because of inflation.

Article:

At annual wage negotiations between labor unions and management, Japanese firms offered the best pay hikes in about three decades, boding well for the BOJ's efforts to achieve stable inflation backed by wage growth.

Sharp pay raises spread to some small and midsize companies, but other firms remained cautious about offering higher wages due to increased costs squeezing their profit margins.

Ideas:

Many large Japanese companies increased wages with some small and medium sized companies too. But the challenge is maybe not enough companies were able to increase wages due to low profit margins related to increased energy and material costs.

The problem for the Japanese economy will be there is going to be a two-tier level of income or level of status as those who got raises will have a better standard of living and those who didn't have to focus more on inflation and how to cut costs as needed.

But that's a market economy where there are always going to differences in income and unfortunately some will do better and some will struggle.

Article:

"We will closely look at our earnings to see if we can continue to raise wages going forward," a company in the restaurant industry was quoted as saying by the BOJ.

The easing of supply disruptions, particularly semiconductors, has helped automakers ramp up production. On the contrary, the output of some goods, such as electronic parts, has slowed due to slackening demand.

The regional economic report is among the data the BOJ will use when it holds its regular two-day policy-setting meeting in late July.

Ideas:

 Maybe many companies, such as the restaurant, know and see how much their employees are struggling with inflation and or course maybe want to increase wages but maybe their profit margins don't allow it at this time.

Supply disruptions, for the most part, have decreased, but the challenge of course is demand for some products has now decreased because of maybe global demand has slowed down.

Regional economies like sectors are not the same. There are going to be some that do very well and some that don't do so well.

The challenge for Japan now is the regions with a lot of elderly workers and or retirees that don't spend very much.

The same for regions with a lot of farmers who are for the most part older workers and many or most of the young have moved to the big city centers for better work and life-style opportunities.

The challenge for the Japanese maybe is to bring in foreigners into these areas as a way to improve economic activity over-time.

Many Japanese communities are either doing those now or are considering doing it.

Have a nice day and be safe!