Japan Economic Assessment: Updated Nov. 5, 2023

 Article Source: https://mainichi.jp/english/articles/20230726/p2g/00m/0bu/027000c

Article:

TOKYO (Kyodo) -- Japan on Wednesday retained its assessment on the economy as "recovering at a moderate pace," using the same expression for the third straight month, as domestic demand remains solid following the removal of anti-COVID curbs.

In its monthly report for July, the Cabinet Office said Japanese firms see improving business conditions, the first upward revision in the category in seven months.

Ideas:

The Japanese government and or the Bank of Japan, never wants to cause harm for investors and others so they always choose their words carefully. "recovering on a moderate pace" is a good way to calm everything down and not cause the financial markets to panic.

Domestic demand might be solid but for how long, as inflation continues to increase in Japan and globally.

Improving business condition might spur more job growth and more wage increases in the future if the Japanese economy continues on its present course.

Article:

The change came after manufacturers were heartened by the easing of supply bottlenecks that had hurt production, while service providers continue to benefit from pent-up demand from the COVID-affected period.

The office also noted public investment is firmer, in the first upward revision in 11 months. Its views on other key components of the economy, from private consumption and capital investment to production and exports, were retained.

Ideas:

Ever since the pandemic there have been periods of stops and starts related to supply challenges either from China and or semiconductor shortage challenges.

Service providers have faced different challenges than manufacturers during and after the pandemic, as many service providers lost a lot of customers and had to lay-off workers as profits and sales decreased dramatically.

Now, as the pandemic has ended some service providers might be experiencing a labor shortage, and their former workers might have moved on to other jobs.

And most likely some service providers are actually increasing prices as they are trying to make up for lost revenue and sales during the pandemic, and taking advantage of the trend of higher prices all over Japan.

Article:

Japan's economy marked its third straight quarter of growth in the three months to June despite accelerating inflation, economists say. But they remain cautious about economic slowdowns in the United States and China, both major trading partners for Japan.

"The Japanese economy is recovering at a moderate pace," the July economic report said, adding that slowing economic growth overseas caused by global monetary tightening poses a downside risk.

Ideas:

After many quarters of not so good growth during and right after the pandemic, is not a surprise that the Japanese economy has rebounded but the rebound is just a combination of making up for pent-up demand in manufacturing and consumer spending.

The Chinese domestic economy has its own challenges and it might continue to cause challenges for Japanese exporters.

The US economy seems to be quite robust despite the US Federal Reserve continuing to increase  the key rate to combat inflation.

Japanese exporters should not focus too much on China at this time, as maybe in the future it will start to get back to some kind of new normal as China re-tools its domestic economy.

The US again is quite robust and the US car market is still strong for Japanese cars.

Article:

"Full attention should be given to price increases and fluctuations in the financial and capital markets," it said.

The widening interest rate gap between Japan and both the United States and Europe supports the view that the yen's weakness will persist, analysts say, as ultralow rates will likely continue while the U.S. and the eurozone's central banks are raising borrowing costs to rein in inflation.

Ideas:

Fluctuations are never good in the financial and capital markets as both markets prefer stability and not a lot of movement up or down, as they can't react quick enough or prepare for continuous fluctuations.

The Japanese yens weakness is both a positive and a negative for Japan. For Japanese exporters it can be a positive as they are able to get higher prices for their products.

But it can also be a negative if the Japanese yen becomes too weak and its price competitiveness loses ground to Chinese and South Korean products in the US as all three countries have similar products and compete in the US.

For the Japanese importers, the weak yen is definitely a negative as the US dollar and Japanese yen variance, the yen being weak, increases import prices from the US and the EU.

Article:

Both private consumption and business investment are "picking up," while industrial production has shown "signs of picking up." Exports, meanwhile, are "steady."

Japan's slow but steady economic recovery from the pandemic has been supported by consumers spending more on services, dining out and taking trips, partly because of household savings accumulated during the pandemic. Companies have also been ramping up investment.

Ideas:
After two or three years of pandemic not so good consumer spending and business investments, maybe both consumer spending and business investment activities are making up for lost time.

Consumer spending might be making up for not much spending during the pandemic and or for example not going out to restaurants and so on. 

Household saving might have increased, but there has to be a balance between spending and savings for an economy to grow. while savings are good, it not always good for growth in the economy, as maybe there isn't enough consumer spending compared to household savings.

Its good that companies are increasing investments, as needed, but are they also increasing needed wage increases for the good of the economy overall.

Article:

The revival of inbound tourism has provided a boost to the economy as the yen's weakness against the U.S. dollar since last year has made Japan a cheaper destination.

The Cabinet Office maintained its assessment on the global economy, saying that it is "picking up despite weakness in some regions."

Ideas:

Inbound tourism or international tourists to Japan is increasing but it might not reach the level of 2019 but might be very close as the weak yen is good for tourists to Japan, as their purchasing power increases with a weak yen.

As China has now normalized its situation there are many Chinese tourists traveling to Japan, and the same with South Korean tourists taking advantage of the weak yen.

But Japan has to be very careful, as before the pandemic many Japanese service sector providers focused only on international tourists and when the pandemic hit, many of them either went out of business and or had to lay-off a lot of their workers.

The same thing happened in South Korea as some businesses became too dependent on international tourists.

The global economy seems to be steady at this point and should not be major concern for most Japanese exporters in the future.

Have a nice day and be safe!