By Max Sato
(MaceNews) – The latest surveys by the government and the Bank of Japan point to some optimism about a recovery from the pandemic that has choked global growth for about a year, but the spread of coronavirus variants amid the slow rollout of vaccinations is clouding the outlook.
The monthly Economy Watchers Survey released Thursday by the Cabinet Office indicated that household and business confidence picked up in March on a delicate balance as the government eased COVID-19 restrictions, but respondents voice uncertainty going forward.
Last month, Prime Minister Yoshihide Suga ended a state of emergency in Tokyo and neighbouring three prefectures, effective March 21, amid concern that big cities may be hit by a fourth wave of new coronavirus cases. The Watchers’ survey was conducted between March 25 and March 31.
The government is still urging people to stay home as much as possible while bars and restaurants are asked to close by 9 pm, an hour later than during the latest state of emergency declared in January.
Restrictions Back in Place
But as feared by many polled by news media recently, coronavirus cases have surged in some commercial hubs, prompting the government to impose restrictions on three prefectures, Osaka and Hyogo in western Japan and Miyagi in the north, for a month, effective April 5. Local governments will decide their own rules on shorter business hours.
The government is also expected Friday to name three more prefectures –
Tokyo, Kyoto and Okinawa – as areas where strict anti-pandemic measures should be applied at least for a month, which is aimed at discouraging people from traveling outside their communities, particularly during the Golden Week holidays from April 29 until May 5.
The Watchers sentiment index for Japan’s current economic climate posted the second straight monthly increase, rising 7.7 points to a five-month high of 49.0 in March on a seasonally adjusted basis, after surging 10.1 points to 41.3 in February. It was still below the recent peak of 53.0 hit in October 2020, which was the highest in over six-years.
A convenience store operator in central Japan told the survey that business was getting slightly better, with more commuters dropping by to pick up breakfast, while a department store manager in the southwest said more people were shopping ahead of graduation and welcome ceremonies as well as relocations due to personnel changes in the new fiscal year.
However, a restaurant operator in northern Japan reported “nearly zero customers” on a daily basis since the local government requested shorter business hours, effective March 25, in light of a rise in coronavirus cases.
Among bright spots in business-to-business dealings, a communications firm in the western region said there were more inquiries regarding data centers and wireless network systems. The government has been encouraging telecommuting to help fight the pandemic and digitalization as part of its growth strategies.
Future Sentiment Uncertain
Looking ahead, the Watchers outlook index, which shows sentiment about the situation two to three months ahead, slipped 1.5 points to 49.8 in March after jumping 11.4 points to 51.3 in February, which was the highest since 52.1 in August 2018.
A taxi driver in northern Japan noted the outlook was “uncertain” as the local government had imposed its own restrictions to slow the spread of the pandemic, while an advertising agency in the eastern region said demand for events, tourism and weddings remained sluggish in the face of an “imminent” fourth wave of infections.
In western Japan, a restaurant operator said there was concern about the future as coronavirus cases had shown no signs of abating and vaccinations had been slow.
The Bank of Japan’s quarterly Tankan business survey released last week also showed Japanese firms in many industries reported their sentiment improved in March from three months earlier, but the majority remains cautious about their outlook. The bank conducted the poll from Feb. 25 until Mar. 31, receiving many responses by mid-March.
Pickup in Tough Conditions
The Cabinet Office also said Thursday that its Consumer Confidence Survey of households with two or more people, which was conducted March 15, showed that sentiment improved for the second straight month.
The Consumer Confidence index rose 2.2 points to a 13-month high of 36.1 in March on a seasonally adjusted basis after rising 4.0 points in February. The Cabinet Office left its assessment basically unchanged, saying consumer sentiment showed “a continued move toward picking up, although conditions remain severe.”
For the second consecutive month, consumers were more optimistic about all of the four key aspects that affect their sentiment — overall economic well-being, income gains, job prospects and whether it would be a good time to buy durable goods over the next six months.
The index on asset prices, which is not one of the sub-indexes used to
calculate overall consumer confidence, also recorded the second straight month of increase, up 0.9 point at 40.3 in March, backed by the recent modest uptrend in the Japanese stock markets.
The survey also showed that for the second straight month, more people thought prices for daily necessities would rise a year from now and fewer respondents believed prices would fall. This may bode well for Japan’s efforts to reflate the economy, but higher consumer prices without a sustained wage recovery could hurt household spending.
The decline in average wages in Japan that began in April 2020 eased in February, while base wages, the key indicator for overall cash earnings, picked up slightly, preliminary data released Tuesday by the Ministry of Health, Labour and Welfare showed.
Total monthly average cash earnings per regular employee in Japan dipped just 0.2% on year in February after slumping 1.3% in January. It was the 11th straight year-on-year decline but the smallest drop during the current downcycle.
Improving From Recent Bottom
The Bank of Japan’s quarterly consumer survey conducted from Feb. 5 to March 3 and released Wednesday showed that sentiment improved slightly from three months earlier but that the majority still felt the economy was in bad shape. The survey also indicated a slight increase in inflation expectations.
The BOJ’s consumer sentiment diffusion index for the current climate rose by 0.8 point to -69.4 in March after gaining 5.4 points to -70.2 in December, posting the second straight quarterly rise from the recent bottom of -75.6 in September 2020. The index is calculated by subtracting the percentage of people who believe economic conditions have deteriorated from the percentage of those reporting an improvement. A negative figure indicates the majority of those polled see things were worse than a year earlier.
The central bank’s consumer sentiment outlook index projecting conditions a year ahead marked the fourth consecutive quarterly rise, up by 14.6 points at -8.5 in March after rising 3.5 points to -23.1 in December. The recent bottom for this index was -42.2 hit in March 2020.
The BOJ survey also showed that the percentage of respondents expecting
prices to rise in the next year stood at 62.4% in March, up from 60% in December. Those saying prices would be little changed 12 months ahead fell to 30.6% from 31.2%.
Disappointing for the BOJ is that 51.6% of the surveyed said they had never heard of the BOJ’s 2% inflation target set over eight years ago, up from 48.4% in the previous survey. Only 18.1% said they knew about the target, down from 20.2% three months earlier.