By Max Sato
(MaceNews) – Japan’s sentiment surveys painted a rosier picture as the government has lifted its Covid-19 state of emergency on heavily hit regions, setting the stage for gradually reopening the economy, but global supply chain disruptions remain a major hindrance to recovery.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Sept. 25 until Sept. 30 and released Friday, showed sentiment rebounded on hopes that the recent acceleration in Covid-19 vaccination progress would allow people to shop, travel and gather more often, and beyond provincial borders.
The Watchers’ sentiment index for Japan’s current economic climate posted the first month-on-month rise in two months in September, up 7.4 points at 42.1 on a seasonally adjusted basis, but it recovered just over a half of the previous month’s 13.7-point plunge to a seven-month low of 34.7.
September’s level is still well below 48.4 in July, which was a four-month high.
“The progress in vaccination seems to be making customers more positive about spending money,” the owner of a hairdresser in the northern central Hokuriku region said.
The manager of a high-end restaurant in central Japan Tokai region reported more activity during the long weekend in September, but noted, “It was a month of self-restraint.”
Bookings for tourism remained depressed, with a city hotel manager in the western Kinki region saying, “We are struggling, being forced to lower the unit price.”
Global semiconductor shortages are lingering and Covid lockdowns in Southeast Asia are worsening parts supply constraints, which have forced carmakers to trim production and are now dampening demand.
A car dealer in the northern Kanto region, just north of Tokyo, lamented, “Even if we sign contracts, we cannot deliver vehicles. Customers are cancelling the orders, so we don’t expect better business for now.”
Looking ahead, the Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, marked the first increase in three months, surging 12.9 points to a nearly eight-year high of 56.6 in September after slipping 4.7 points to 43.7 in August. It was the highest level since 57.6 in November 2013.
“We expect shopping for traveling and wedding gifts to increase now that many seniors have been fully vaccinated,” a department store manager in the northern central region predicted.
A car dealer in the same region described the outlook as neutral and explained, “We continue to see solid orders but the prospect for delivering vehicles is uncertain because of the reduced auto output.”
In the northern Tohoku region, a staffing agency manager was positive, “Things are expected to recover, particularly in the service sector, as more people are being vaccinated and restrictions are being lifted.”
On the downside, a senior official at a construction firm in southern Kanto region where Tokyo is located said, “The prices for building materials are soaring and are expected to remain on an uptrend, which is affecting customers’ appetite to place an order.”
Japan lifted the state of emergency in all regions on Oct. 1 for the first time in nearly six months following a fall in the number of new cases, allowing certified restaurants with anti-Covid measures to stay open until 9 p.m., and permitting bars and restaurants to resume serving alcohol.
The move bodes well for economic activity for the last three months of the year but growth for the July-September quarter appears to be sluggish.
“The overall diffusion index for the Watchers’ current conditions for September rebounded from August, but if you take a look at the details by industry, only a few categories, such supermarkets, exceeded their levels in July, and many, including department stores, failed to do so,” said Sumitomo Mitsui DS Asset Management chief economist Akiyoshi Takumori.
“This means consumer spending figures will show tough conditions in September,” he predicted. “Given the good outlook index, things will pick up in October onward now that the state of emergency has been lifted.”
Private consumption, which accounts for about 55% of the gross domestic product, is expected to slump in the July-September quarter after showing resilience in April-June, up 0.9% on quarter and pushing up the total output by 0.5 percentage point.
Data released last month showed that Japan’s GDP rose a real 0.5% on quarter, or an annualized 1.9%, in the second quarter, although the rebound in April-June recovered only about a half of a 1.1% slump (annualized 4.2%) in January-March.
Economists on average forecast GDP growth would slow down to just 1% at an annualized rate in July-September, revised down from 1.36% projected last month, according to the latest monthly ESP Survey of 37 forecasters conducted by the Japan Center for Economic Research from Sept. 27 to Oct. 4 and released Thursday.
The Cabinet Office reported on Oct. 1 that its Consumer Confidence Survey of households with two or more people, which was conducted Sept. 15, showed that sentiment rebounded in all key areas.
The Consumer Confidence index rose 1.1 points to 37.8 in September on a seasonally adjusted basis after falling 0.8 point to 36.7 in August.
The Cabinet Office maintained its assessment that consumer sentiment showed “a move toward picking up continues, although conditions remain severe.”
Consumers were more optimistic about all 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, gained 1.6 points to 42.2, up for the second straight month after edging up 0.4 point in August.
The latest hard data indicated the economy lost some steam at the peak of the summer.
Japan’s household spending plunged in August as people were cautious about shopping or traveling amid the fifth wave of pandemic that was causing hospital bed shortages in major cities, data released Friday by the Ministry of Internal Affairs and Communications showed.
Heavy rains from mid-August caused damage and disrupted traffic in many regions while the government expanded the areas under strict Covid restrictions in the month.
Real average spending by households with two or more people slumped 3.0% on year after rising 0.7% in July and slipping 4.3% in June. On the month, spending dived a seasonally adjusted 3.9%, the fourth straight drop after dipping 0.9%.
The Bank of Japan’s supply-side Consumption Activity Index posted the second consecutive month-on-month drop in August, down a real 2.1% on a seasonally adjusted basis after slipping 0.1% in July and rising 2.5% in June. The July-August average, a proxy for the overall Q3 figure, declined 0.7% on the April-June quarter, when the index fell 1.3%.