Japan Economic View: Updated Dec. 31, 2023.

 

Japan views economy on moderate recovery path, warns of Mideast risks

Article Source: https://mainichi.jp/english/articles/20231030/p2g/00m/0bu/045000c

Article:

TOKYO (Kyodo) -- The government on Monday maintained its view that the Japanese economy is "recovering at a moderate pace," but warned of risks from the conflict in the Middle East.

The Cabinet Office kept the same assessment for the sixth straight month. It retained its views on most of the key components of the economy, from private consumption and capital expenditure to exports.

Ideas:

"Recovering at a moderate pace" is a polite expression and or it is what it is, meaning the Japanese economy is not yet where it should be but headed in the right direction.

Anytime there are global risks such as the Ukraine situation and now the Mideast situation, there are only gong to be global risks that might disrupt supply chains, export shipments, oil/energy shipments and so on..

What the Japanese government doesn't want to do it give a report that might disrupt or shock the financial and stock markets. So they always tend to keep the reports somewhat positive. 

Article:

But the monthly report said companies view their business conditions as "recovering moderately as a whole," the first upgrade in three months. Public investment was downgraded for the first time since last November.

The government expects the economy to see a moderate recovery in the short term, but pointed to downside risks from aggressive monetary tightening in overseas economies and a slowdown in China, the Asian powerhouse.

Ideas:

Companies might view business conditions as "recovering moderately, and that, again, is a  positive view and it could be somewhat different depending on company to company.

Public investment is never a liner or straight line of investment, as there are going to be months of a lot of investment and month of less investment depending on the situation.

Again, a "moderate recovery" might be true for some or many, but the Japanese economy, like any economy, has many sectors and maybe not all companies and sectors are going to improve or grow exactly the same.

Monetary tightening in the US for example, at this time, seems to have taken a pause, as the US economy and inflation in particular seems to be decreasing and the US Federal Reserve, the US central bank, has not increase the rate recently, and for 2024 they have suggested, as the US economy continues to improve, there might be three rate decreases.

Article:

"Full attention should be given to price increases, the situation in the Middle East and fluctuations in the financial and capital markets," the October report said.

The yen has broken past the psychologically important 150 threshold relative to the U.S. dollar, keeping financial markets on edge over whether Japanese authorities will step into the currency market to slow its decline.

Ideas:

Inflation or price increases, continue to cause stress for Japanese households and companies, with maybe no end in sight as some suggest 2024 could be more of the same.

The Middle East situation, unfortunately, is an ongoing political risk, that never seems to resolve itself. 

As far a fluctuations in the financial markets are concerned, there are positives and negatives to fluctuation depending on the market and the intensity of the fluctuations.

The Japanese yen at 150 is a very weak yen, but at the same time, there are positives and negatives to a weak yen.

For Japanese export companies a weak yen helps Japanese companies can get more profits for their Japanese products. But at the same time, if Japanese products become too expensive, compared to South Korean products or Chinese products, there is the chance that they could lose their competitive edge.

Also, as the Japanese yen is weak, it a strong incentive for foreign tourists to go to Japan and they can spend more as their purchasing power increases significantly. 

But for Japanese importers, the weak yen increases import prices significantly which also means maybe households have to pay more as importers and wholesalers, and companies  pass-on their increase costs to the next in the supply chain.

Article:

Private consumption and business investment are "picking up," and exports are showing "signs of picking up recently," the government said.

Strong overseas demand has helped the Japanese economy achieve strong growth in recent quarters. Spending by consumers and firms -- key drivers of domestic demand -- has remained resilient despite accelerating inflation, driven by higher prices of energy and raw materials along with a weaker yen.

Ideas:

Private consumption, for consumer spending, or household spending, however you want to describe is maybe 50 percent of Japan's GDP and or a little more, compared to the US where consumer spending is maybe 60 percent or more.  But, overall, consumer spending has not reached the level that the Bank of Japan or the Japanese government would like to see, as Japanese consumers, for the most part, are more savers than spenders.

Business investment is never a monthly situation as its usually more of quarterly situation as to when companies decide to invest.

Japanese exports are a major economic driver, meaning it helps the Japanese economy grow significantly, even though Japanese exports might only be 20 percent of Japan's GDP.

Consumer spending might be related, still, to latent spending, meaning Japanese consumers during the pandemic reduced their spending or delayed their spending until the pandemic ended. 

And for the most part, inflation might not be that much of a stress for some in the Japanese economy, as maybe they might not feel the affects of inflation and or they don't notice the increase in prices of what they buy each day, each week or each month.

Article:

The report, released before the government finalizes an economic package on Thursday to support households hit by rising prices, said consumer prices are "rising," unchanged from its September assessment.

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

Ideas:

The final economic package, is never what was intended initially, as different factions in the Japanese diet, or parliament, will change the what was intended, to meet the demands of their constituents and or group interests.

For example, the tax cut and cash handout, as intended initially probably will be much less as the factions work on it.

The global economy, at this time has many challenges, from the Ukraine/Russia situation, the Middle East situation, and closer to Japan, the Chinese economy is going through some major transformations or changes along with some significant domestic challenges.

The US economy, as this time, appears to be headed for a "soft landing," meaning its not going to head into a recession, and its moving out of its inflation situation.

Have a nice day and be safe!